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 (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter. One of these stocks was Cognex Corporation (NASDAQ:CGNX).
Cognex Corporation (NASDAQ:CGNX) investors should be aware of an increase in hedge fund interest recently. CGNX was in 24 hedge funds' portfolios at the end of December. There were 20 hedge funds in our database with CGNX positions at the end of the previous quarter. Our calculations also showed that CGNX 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).
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_193003" align="aligncenter" width="399"] Chuck Royce of Royce & Associates[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. Now let's take a gander at the new hedge fund action surrounding Cognex Corporation (NASDAQ:CGNX).
What have hedge funds been doing with Cognex Corporation (NASDAQ:CGNX)?
Heading into the first quarter of 2020, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 20% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CGNX over the last 18 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Cognex Corporation (NASDAQ:CGNX) was held by Royce & Associates, which reported holding $56.7 million worth of stock at the end of September. It was followed by Polar Capital with a $38 million position. Other investors bullish on the company included AQR Capital Management, Balyasny Asset Management, and PDT Partners. In terms of the portfolio weights assigned to each position PDT Partners allocated the biggest weight to Cognex Corporation (NASDAQ:CGNX), around 1.45% of its 13F portfolio. Jade Capital Advisors is also relatively very bullish on the stock, earmarking 1.38 percent of its 13F equity portfolio to CGNX.
As one would reasonably expect, specific money managers have been driving this bullishness. Maplelane Capital, managed by Leon Shaulov, assembled the most valuable position in Cognex Corporation (NASDAQ:CGNX). Maplelane Capital had $11.1 million invested in the company at the end of the quarter. Robert Vincent McHugh's Jade Capital Advisors also initiated a $2.5 million position during the quarter. The following funds were also among the new CGNX investors: Lee Ainslie's Maverick Capital, Mikal Patel's Oribel Capital Management, and Noam Gottesman's GLG Partners.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Cognex Corporation (NASDAQ:CGNX) but similarly valued. These stocks are AGNC Investment Corp. (NASDAQ:AGNC), Zillow Group Inc (NASDAQ:Z), Targa Resources Corp (NYSE:TRGP), and Teck Resources Ltd (NYSE:TECK). This group of stocks' market valuations are closest to CGNX's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AGNC,21,147216,3 Z,37,1682527,-5 TRGP,27,346879,9 TECK,30,687927,10 Average,28.75,716137,4.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $716 million. That figure was $212 million in CGNX's case. Zillow Group Inc (NASDAQ:Z) is the most popular stock in this table. On the other hand AGNC Investment Corp. (NASDAQ:AGNC) is the least popular one with only 21 bullish hedge fund positions. Cognex Corporation (NASDAQ:CGNX) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately CGNX wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CGNX investors were disappointed as the stock returned -31.3% 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 most of these stocks already outperformed the market in Q1. 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.