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Were Hedge Funds Right About Piling Into Cummins Inc. (CMI)?

Reymerlyn Martin

Is Cummins Inc. (NYSE:CMI) going to take off soon? The smart money is turning bullish. The number of bullish hedge fund positions inched up by 3 recently. Our calculations also showed that CMI isn't among the 30 most popular stocks among hedge funds.

Today there are many gauges shareholders use to appraise their stock investments. A pair of the most innovative gauges are hedge fund and insider trading activity. We have shown that, historically, those who follow the best picks of the top hedge fund managers can outpace the market by a superb margin (see the details here).

David Keidan of Buckingham Capital

We're going to take a peek at the recent hedge fund action regarding Cummins Inc. (NYSE:CMI).

How have hedgies been trading Cummins Inc. (NYSE:CMI)?

At the end of the fourth quarter, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 9% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in CMI over the last 14 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

CMI_mar2019

The largest stake in Cummins Inc. (NYSE:CMI) was held by Two Sigma Advisors, which reported holding $183.4 million worth of stock at the end of September. It was followed by AQR Capital Management with a $82 million position. Other investors bullish on the company included Millennium Management, GLG Partners, and Gotham Asset Management.

With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Gotham Asset Management, managed by Joel Greenblatt, initiated the most valuable position in Cummins Inc. (NYSE:CMI). Gotham Asset Management had $35.8 million invested in the company at the end of the quarter. Andrew Feldstein and Stephen Siderow's Blue Mountain Capital also made a $7.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Matthew Tewksbury's Stevens Capital Management, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, and David Keidan's Buckingham Capital Management.

Let's check out hedge fund activity in other stocks similar to Cummins Inc. (NYSE:CMI). We will take a look at Hilton Worldwide Holdings Inc (NYSE:HLT), Atlassian Corporation Plc (NASDAQ:TEAM), Zimmer Biomet Holdings Inc (NYSE:ZBH), and Lam Research Corporation (NASDAQ:LRCX). All of these stocks' market caps are similar to CMI's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HLT,47,4153280,2 TEAM,34,1085223,6 ZBH,36,1037508,-4 LRCX,36,862903,2 Average,38.25,1784729,1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.25 hedge funds with bullish positions and the average amount invested in these stocks was $1785 million. That figure was $584 million in CMI's case. Hilton Worldwide Holdings Inc (NYSE:HLT) is the most popular stock in this table. On the other hand Atlassian Corporation Plc (NASDAQ:TEAM) is the least popular one with only 34 bullish hedge fund positions. Cummins Inc. (NYSE:CMI) is not the least popular stock in this group and hedge fund interest is still below average. However, we see an improvement in hedge fund sentiment in Q4. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Hedge funds were also right about betting on CMI, though not to the same extent, as the stock returned 18.7% and outperformed the market as well.

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

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