The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 866 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their March 31st holdings, data that is available nowhere else. Should you consider Caterpillar Inc. (NYSE:CAT) for your portfolio? We'll look to this invaluable collective wisdom for the answer.
Caterpillar Inc. (NYSE:CAT) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 53 hedge funds' portfolios at the end of the first quarter of 2021. Our calculations also showed that CAT isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Anheuser-Busch InBev SA/NV (NYSE:BUD), Rio Tinto Group (NYSE:RIO), and Sanofi (NYSE:SNY) to gather more data points.
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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. 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 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.
Ric Dillon of Diamond Hill Capital
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Do Hedge Funds Think CAT Is A Good Stock To Buy Now?
At first quarter's end, a total of 53 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CAT over the last 23 quarters. With the smart money's capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
More specifically, Bill & Melinda Gates Foundation Trust was the largest shareholder of Caterpillar Inc. (NYSE:CAT), with a stake worth $2355 million reported as of the end of March. Trailing Bill & Melinda Gates Foundation Trust was Fisher Asset Management, which amassed a stake valued at $1487.4 million. Citadel Investment Group, Diamond Hill Capital, and Adage 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 Bill & Melinda Gates Foundation Trust allocated the biggest weight to Caterpillar Inc. (NYSE:CAT), around 11.24% of its 13F portfolio. NWI Management is also relatively very bullish on the stock, dishing out 4.83 percent of its 13F equity portfolio to CAT.
Because Caterpillar Inc. (NYSE:CAT) has experienced bearish sentiment from the aggregate hedge fund industry, it's safe to say that there lies a certain "tier" of fund managers that decided to sell off their positions entirely by the end of the first quarter. At the top of the heap, Dmitry Balyasny's Balyasny Asset Management sold off the biggest investment of the 750 funds watched by Insider Monkey, worth an estimated $19.1 million in stock, and Till Bechtolsheimer's Arosa Capital Management was right behind this move, as the fund dumped about $10.9 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Caterpillar Inc. (NYSE:CAT) but similarly valued. These stocks are Anheuser-Busch InBev SA/NV (NYSE:BUD), Rio Tinto Group (NYSE:RIO), Sanofi (NYSE:SNY), The Charles Schwab Corporation (NYSE:SCHW), Applied Materials, Inc. (NASDAQ:AMAT), TOTAL S.A. (NYSE:TOT), and International Business Machines Corp. (NYSE:IBM). This group of stocks' market values resemble CAT's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BUD,18,979916,0 RIO,25,1596509,-1 SNY,15,1142178,0 SCHW,76,4905041,15 AMAT,78,5711193,17 TOT,17,1163601,3 IBM,41,1355701,-10 Average,38.6,2407734,3.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 38.6 hedge funds with bullish positions and the average amount invested in these stocks was $2408 million. That figure was $4956 million in CAT's case. Applied Materials, Inc. (NASDAQ:AMAT) is the most popular stock in this table. On the other hand Sanofi (NYSE:SNY) is the least popular one with only 15 bullish hedge fund positions. Caterpillar Inc. (NYSE:CAT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CAT is 60.4. 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.2% in 2021 through June 11th and beat the market again by 3.3 percentage points. Unfortunately CAT wasn't nearly as popular as these 5 stocks and hedge funds that were betting on CAT were disappointed as the stock returned -4.4% since the end of March (through 6/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.