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How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Crown Holdings, Inc. (NYSE:CCK).
Is Crown Holdings, Inc. (NYSE:CCK) a buy here? Money managers were getting less optimistic. The number of bullish hedge fund bets decreased by 5 recently. Crown Holdings, Inc. (NYSE:CCK) was in 51 hedge funds' portfolios at the end of June. The all time high for this statistics is 58. Our calculations also showed that CCK isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 56 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Harold Levy of Iridian Asset Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Keeping this in mind let's check out the new hedge fund action regarding Crown Holdings, Inc. (NYSE:CCK).
Hedge fund activity in Crown Holdings, Inc. (NYSE:CCK)
At second quarter's end, a total of 51 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the previous quarter. By comparison, 35 hedge funds held shares or bullish call options in CCK a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Crown Holdings, Inc. (NYSE:CCK) was held by Lyrical Asset Management, which reported holding $225.9 million worth of stock at the end of September. It was followed by Maverick Capital with a $148.7 million position. Other investors bullish on the company included Southpoint Capital Advisors, Rivulet Capital, and Adage Capital Management. In terms of the portfolio weights assigned to each position SAYA Management allocated the biggest weight to Crown Holdings, Inc. (NYSE:CCK), around 14.83% of its 13F portfolio. Impactive Capital is also relatively very bullish on the stock, dishing out 11.54 percent of its 13F equity portfolio to CCK.
Judging by the fact that Crown Holdings, Inc. (NYSE:CCK) has faced falling interest from hedge fund managers, it's easy to see that there exists a select few fund managers who sold off their full holdings by the end of the second quarter. Interestingly, Anand Parekh's Alyeska Investment Group dumped the largest stake of the 750 funds followed by Insider Monkey, totaling about $42.2 million in stock. Guy Shahar's fund, DSAM Partners, also cut its stock, about $34.7 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 5 funds by the end of the second quarter.
Let's now review hedge fund activity in other stocks similar to Crown Holdings, Inc. (NYSE:CCK). We will take a look at Fastly, Inc. (NYSE:FSLY), Cna Financial Corporation (NYSE:CNA), NiSource Inc. (NYSE:NI), Equitable Holdings, Inc. (NYSE:EQH), RenaissanceRe Holdings Ltd. (NYSE:RNR), Clarivate Plc (NYSE:CCC), and Charles River Laboratories International Inc. (NYSE:CRL). This group of stocks' market caps match CCK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FSLY,27,1662391,5 CNA,12,48476,0 NI,21,300585,-6 EQH,39,1111581,12 RNR,41,870861,11 CCC,45,1300868,17 CRL,41,1050760,5 Average,32.3,906503,6.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.3 hedge funds with bullish positions and the average amount invested in these stocks was $907 million. That figure was $1240 million in CCK's case. Clarivate Plc (NYSE:CCC) is the most popular stock in this table. On the other hand Cna Financial Corporation (NYSE:CNA) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Crown Holdings, Inc. (NYSE:CCK) is more popular among hedge funds. Our overall hedge fund sentiment score for CCK is 76.4. 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 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 30% in 2020 through October 23rd but still managed to beat the market by 21 percentage points. Hedge funds were also right about betting on CCK as the stock returned 38.8% since the end of June (through 10/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.