We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the fourth quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4 years and analyze what the smart money thinks of Cubic Corporation (NYSE:CUB) based on that data.
Is Cubic Corporation (NYSE:CUB) a buy, sell, or hold? Investors who are in the know are becoming more confident. The number of bullish hedge fund bets moved up by 2 lately. Our calculations also showed that CUB isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). CUB was in 19 hedge funds' portfolios at the end of the fourth quarter of 2019. There were 17 hedge funds in our database with CUB holdings at the end of the previous quarter.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
[caption id="attachment_30570" align="aligncenter" width="400"] James Dinan of York Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind let's take a look at the key hedge fund action encompassing Cubic Corporation (NYSE:CUB).
What does smart money think about Cubic Corporation (NYSE:CUB)?
Heading into the first quarter of 2020, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 12% from the third quarter of 2019. On the other hand, there were a total of 22 hedge funds with a bullish position in CUB a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, York Capital Management held the most valuable stake in Cubic Corporation (NYSE:CUB), which was worth $12.3 million at the end of the third quarter. On the second spot was Intrinsic Edge Capital which amassed $11.4 million worth of shares. Royce & Associates, Millennium Management, and Hudson Bay Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Lyon Street Capital allocated the biggest weight to Cubic Corporation (NYSE:CUB), around 2.27% of its 13F portfolio. Intrinsic Edge Capital is also relatively very bullish on the stock, designating 1.43 percent of its 13F equity portfolio to CUB.
With a general bullishness amongst the heavyweights, key money managers were breaking ground themselves. York Capital Management, managed by James Dinan, established the most outsized position in Cubic Corporation (NYSE:CUB). York Capital Management had $12.3 million invested in the company at the end of the quarter. Benjamin A. Smith's Laurion Capital Management also initiated a $0.4 million position during the quarter. The following funds were also among the new CUB investors: Mika Toikka's AlphaCrest Capital Management, Joel Greenblatt's Gotham Asset Management, and Gavin Saitowitz and Cisco J. del Valle's Springbok Capital.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Cubic Corporation (NYSE:CUB) but similarly valued. We will take a look at Vector Group Ltd (NYSE:VGR), Caretrus REIT Inc (NASDAQ:CTRE), Forward Air Corporation (NASDAQ:FWRD), and FormFactor, Inc. (NASDAQ:FORM). This group of stocks' market values resemble CUB's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VGR,17,203826,-2 CTRE,13,69296,-3 FWRD,20,137214,-1 FORM,22,128673,3 Average,18,134752,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $135 million. That figure was $44 million in CUB's case. FormFactor, Inc. (NASDAQ:FORM) is the most popular stock in this table. On the other hand Caretrus REIT Inc (NASDAQ:CTRE) is the least popular one with only 13 bullish hedge fund positions. Cubic Corporation (NYSE:CUB) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately CUB wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CUB were disappointed as the stock returned -35.6% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.