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Were Hedge Funds Right About Comerica Incorporated (CMA)?

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·6 min read
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In this article we will take a look at whether hedge funds think Comerica Incorporated (NYSE:CMA) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is Comerica Incorporated (NYSE:CMA) a buy, sell, or hold? Prominent investors were in a bullish mood. The number of bullish hedge fund positions advanced by 3 lately. Comerica Incorporated (NYSE:CMA) was in 36 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 49. Our calculations also showed that CMA 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.

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 was 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Fred Cummings of Elizabeth Park Capital
Fred Cummings of Elizabeth Park Capital

Fred Cummings of Elizabeth Park Capital

At Insider Monkey we scour multiple sources to uncover 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 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 we're going to take a gander at the fresh hedge fund action surrounding Comerica Incorporated (NYSE:CMA).

Hedge fund activity in Comerica Incorporated (NYSE:CMA)

Heading into the third quarter of 2020, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from one quarter earlier. By comparison, 32 hedge funds held shares or bullish call options in CMA a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

The largest stake in Comerica Incorporated (NYSE:CMA) was held by Citadel Investment Group, which reported holding $55.6 million worth of stock at the end of June. It was followed by Arrowstreet Capital with a $53.7 million position. Other investors bullish on the company included Two Sigma Advisors, D E Shaw, and Adage Capital Management. In terms of the portfolio weights assigned to each position MSDC Management allocated the biggest weight to Comerica Incorporated (NYSE:CMA), around 5.92% of its 13F portfolio. Elizabeth Park Capital Management is also relatively very bullish on the stock, setting aside 2.41 percent of its 13F equity portfolio to CMA.

As aggregate interest increased, specific money managers were breaking ground themselves. Azora Capital, managed by Ravi Chopra, assembled the most valuable position in Comerica Incorporated (NYSE:CMA). Azora Capital had $13.3 million invested in the company at the end of the quarter. Jeffrey Altman's Owl Creek Asset Management also made a $12.2 million investment in the stock during the quarter. The other funds with brand new CMA positions are Steve Cohen's Point72 Asset Management, Fred Cummings's Elizabeth Park Capital Management, and Minhua Zhang's Weld Capital Management.

Let's now take a look at hedge fund activity in other stocks similar to Comerica Incorporated (NYSE:CMA). These stocks are PLDT Inc. (NYSE:PHI), Ralph Lauren Corporation (NYSE:RL), Ares Management Corp (NYSE:ARES), Churchill Downs Incorporated (NASDAQ:CHDN), Sonoco Products Company (NYSE:SON), First Solar, Inc. (NASDAQ:FSLR), and Reata Pharmaceuticals, Inc. (NASDAQ:RETA). This group of stocks' market values are closest to CMA's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PHI,5,85702,-2 RL,25,499671,-1 ARES,20,448658,4 CHDN,25,470037,-6 SON,25,128777,2 FSLR,16,68174,-6 RETA,34,439815,1 Average,21.4,305833,-1.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.4 hedge funds with bullish positions and the average amount invested in these stocks was $306 million. That figure was $424 million in CMA's case. Reata Pharmaceuticals, Inc. (NASDAQ:RETA) is the most popular stock in this table. On the other hand PLDT Inc. (NYSE:PHI) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Comerica Incorporated (NYSE:CMA) is more popular among hedge funds. Our overall hedge fund sentiment score for CMA is 80. 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 23% in 2020 through October 30th but still managed to beat the market by 20.1 percentage points. Hedge funds were also right about betting on CMA as the stock returned 21.5% since the end of June (through 10/30) 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.

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