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Was The Smart Money Right About Carnival Corporation (CCL)?

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Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Carnival Corporation & plc (NYSE:CCL)? The smart money sentiment can provide an answer to this question.

Is Carnival Corporation & plc (NYSE:CCL) the right investment to pursue these days? Investors who are in the know were getting more optimistic. The number of bullish hedge fund bets rose by 10 in recent months. Carnival Corporation & plc (NYSE:CCL) was in 47 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 53. Our calculations also showed that CCL isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 37 hedge funds in our database with CCL positions at the end of the third quarter.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 124 percentage points since March 2017 (see the details here). That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Matthew Halbower Pentwater Capital
Matthew Halbower Pentwater Capital

Matthew Halbower of Pentwater Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind we're going to check out the new hedge fund action encompassing Carnival Corporation & plc (NYSE:CCL).

Do Hedge Funds Think CCL Is A Good Stock To Buy Now?

At Q4's end, a total of 47 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 27% from the third quarter of 2020. By comparison, 34 hedge funds held shares or bullish call options in CCL a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, D E Shaw held the most valuable stake in Carnival Corporation & plc (NYSE:CCL), which was worth $355 million at the end of the fourth quarter. On the second spot was Marshall Wace LLP which amassed $226 million worth of shares. Senator Investment Group, Candlestick Capital Management, and Columbus Hill 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 Covalent Capital Partners allocated the biggest weight to Carnival Corporation & plc (NYSE:CCL), around 7.74% of its 13F portfolio. Columbus Hill Capital Management is also relatively very bullish on the stock, earmarking 4.52 percent of its 13F equity portfolio to CCL.

Now, some big names have been driving this bullishness. Candlestick Capital Management, managed by Jack Woodruff, initiated the most outsized position in Carnival Corporation & plc (NYSE:CCL). Candlestick Capital Management had $74.6 million invested in the company at the end of the quarter. Kevin D. Eng's Columbus Hill Capital Management also initiated a $60.8 million position during the quarter. The other funds with new positions in the stock are Hyder Ahmad's Broad Peak Investment Holdings, John Brennan's Sirios Capital Management, and Matthew Halbower's Pentwater Capital Management.

Let's also examine hedge fund activity in other stocks similar to Carnival Corporation & plc (NYSE:CCL). These stocks are Fortive Corporation (NYSE:FTV), Arthur J. Gallagher & Co. (NYSE:AJG), Edison International (NYSE:EIX), Maxim Integrated Products Inc. (NASDAQ:MXIM), Rogers Communications Inc. (NYSE:RCI), Tyson Foods, Inc. (NYSE:TSN), and DTE Energy Company (NYSE:DTE). All of these stocks' market caps are closest to CCL's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FTV,33,1116808,-1 AJG,24,142669,-11 EIX,30,1441563,2 MXIM,54,2844204,2 RCI,15,279915,0 TSN,38,867498,2 DTE,29,309932,1 Average,31.9,1000370,-0.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.9 hedge funds with bullish positions and the average amount invested in these stocks was $1000 million. That figure was $1197 million in CCL's case. Maxim Integrated Products Inc. (NASDAQ:MXIM) is the most popular stock in this table. On the other hand Rogers Communications Inc. (NYSE:RCI) is the least popular one with only 15 bullish hedge fund positions. Carnival Corporation & plc (NYSE:CCL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CCL is 77.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. Hedge funds were also right about betting on CCL as the stock returned 29.1% since the end of Q4 (through 4/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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Disclosure: None. This article was originally published at Insider Monkey.

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