Were Hedge Funds Right Dumping Cambium Networks Corporation (CMBM)?
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 Cambium Networks Corporation (NASDAQ:CMBM)? The smart money sentiment can provide an answer to this question.
Cambium Networks Corporation (NASDAQ:CMBM) has seen a decrease in support from the world's most elite money managers of late. CMBM was in 7 hedge funds' portfolios at the end of September. There were 11 hedge funds in our database with CMBM positions at the end of the previous quarter. Our calculations also showed that CMBM isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the 21st century investor’s toolkit there are a multitude of indicators stock traders can use to size up publicly traded companies. Two of the less utilized indicators are hedge fund and insider trading activity. We have shown that, historically, those who follow the best picks of the top fund managers can outpace the market by a healthy amount (see the details here).
[caption id="attachment_25717" align="alignnone" width="548"]
Steven Cohen of Point72 Asset Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. Let's check out the recent hedge fund action surrounding Cambium Networks Corporation (NASDAQ:CMBM).
How have hedgies been trading Cambium Networks Corporation (NASDAQ:CMBM)?
At Q3's end, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -36% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in CMBM over the last 17 quarters. With the smart money's sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
More specifically, Point72 Asset Management was the largest shareholder of Cambium Networks Corporation (NASDAQ:CMBM), with a stake worth $2 million reported as of the end of September. Trailing Point72 Asset Management was Laurion Capital Management, which amassed a stake valued at $1.7 million. Element Capital Management, Pentwater Capital Management, and Millennium 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 Element Capital Management allocated the biggest weight to Cambium Networks Corporation (NASDAQ:CMBM), around 0.13% of its 13F portfolio. Pentwater Capital Management is also relatively very bullish on the stock, earmarking 0.02 percent of its 13F equity portfolio to CMBM.
Judging by the fact that Cambium Networks Corporation (NASDAQ:CMBM) has faced a decline in interest from the aggregate hedge fund industry, it's safe to say that there lies a certain "tier" of fund managers that elected to cut their full holdings heading into Q4. Interestingly, David Costen Haley's HBK Investments sold off the biggest position of the 750 funds watched by Insider Monkey, comprising an estimated $1.7 million in stock. Michael A. Price and Amos Meron's fund, Empyrean Capital Partners, also cut its stock, about $1.2 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 4 funds heading into Q4.
Let's now take a look at hedge fund activity in other stocks similar to Cambium Networks Corporation (NASDAQ:CMBM). These stocks are Liquidity Services, Inc. (NASDAQ:LQDT), Recro Pharma Inc (NASDAQ:REPH), Satsuma Pharmaceuticals, Inc. (NASDAQ:STSA), and Consolidated Water Co. Ltd. (NASDAQ:CWCO). This group of stocks' market valuations match CMBM's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LQDT,8,33497,1 REPH,12,50206,1 STSA,7,108938,7 CWCO,3,10018,0 Average,7.5,50665,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.5 hedge funds with bullish positions and the average amount invested in these stocks was $51 million. That figure was $7 million in CMBM's case. Recro Pharma Inc (NASDAQ:REPH) is the most popular stock in this table. On the other hand Consolidated Water Co. Ltd. (NASDAQ:CWCO) is the least popular one with only 3 bullish hedge fund positions. Cambium Networks Corporation (NASDAQ:CMBM) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CMBM wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CMBM investors were disappointed as the stock returned -25.3% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
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