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In this article we will check out the progression of hedge fund sentiment towards Cisco Systems, Inc. (NASDAQ:CSCO) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Cisco Systems, Inc. (NASDAQ:CSCO) was in 59 hedge funds' portfolios at the end of March. The all time high for this statistic is 68. CSCO has experienced a decrease in activity from the world's largest hedge funds recently. There were 60 hedge funds in our database with CSCO positions at the end of the fourth quarter. Our calculations also showed that CSCO isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).
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 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.
David Blood of Generation Investment Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, advertising technology one of the fastest growing industries right now, so we are checking out stock pitches like this under-the-radar adtech stock that can deliver 10x gains. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now let's take a glance at the key hedge fund action encompassing Cisco Systems, Inc. (NASDAQ:CSCO).
Do Hedge Funds Think CSCO Is A Good Stock To Buy Now?
Heading into the second quarter of 2021, a total of 59 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -2% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CSCO over the last 23 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, David Blood and Al Gore's Generation Investment Management has the number one position in Cisco Systems, Inc. (NASDAQ:CSCO), worth close to $1.2025 billion, amounting to 5% of its total 13F portfolio. The second largest stake is held by Ken Fisher of Fisher Asset Management, with a $1.1111 billion position; the fund has 0.8% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that hold long positions include Cliff Asness's AQR Capital Management, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and D. E. Shaw's D E Shaw. In terms of the portfolio weights assigned to each position Generation Investment Management allocated the biggest weight to Cisco Systems, Inc. (NASDAQ:CSCO), around 5.04% of its 13F portfolio. Mondrian Capital is also relatively very bullish on the stock, earmarking 3.8 percent of its 13F equity portfolio to CSCO.
Due to the fact that Cisco Systems, Inc. (NASDAQ:CSCO) has faced a decline in interest from the aggregate hedge fund industry, it's easy to see that there lies a certain "tier" of hedge funds that decided to sell off their positions entirely last quarter. Interestingly, Michael Rockefeller and KarláKroeker's Woodline Partners said goodbye to the largest investment of the "upper crust" of funds tracked by Insider Monkey, comprising close to $14.3 million in stock. Renaissance Technologies, also cut its stock, about $13.7 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 1 funds last quarter.
Let's also examine hedge fund activity in other stocks similar to Cisco Systems, Inc. (NASDAQ:CSCO). We will take a look at Toyota Motor Corporation (NYSE:TM), AT&T Inc. (NYSE:T), Abbott Laboratories (NYSE:ABT), NIKE, Inc. (NYSE:NKE), Oracle Corporation (NYSE:ORCL), Pfizer Inc. (NYSE:PFE), and Chevron Corporation (NYSE:CVX). All of these stocks' market caps match CSCO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TM,18,824174,7 T,63,2701777,5 ABT,65,5136552,1 NKE,78,5176711,-4 ORCL,52,2888444,0 PFE,65,2014186,2 CVX,41,4866758,-9 Average,54.6,3372657,0.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 54.6 hedge funds with bullish positions and the average amount invested in these stocks was $3373 million. That figure was $5194 million in CSCO's case. NIKE, Inc. (NYSE:NKE) is the most popular stock in this table. On the other hand Toyota Motor Corporation (NYSE:TM) is the least popular one with only 18 bullish hedge fund positions. Cisco Systems, Inc. (NASDAQ:CSCO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CSCO is 64.2. 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 CSCO wasn't nearly as popular as these 5 stocks and hedge funds that were betting on CSCO were disappointed as the stock returned 6.7% 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.