Caterpillar Inc. (CAT): Are Hedge Funds Right About This Stock?

Are hedge funds right about Caterpillar Inc. (NYSE:CAT)?

Now, according to many traders, hedge funds are assumed to be overrated, outdated investment tools of a forgotten age. Although there are In excess of 8,000 hedge funds trading today, Insider Monkey looks at the elite of this group, about 525 funds. It is assumed that this group has its hands on most of the smart money’s total assets, and by watching their highest performing investments, we’ve revealed a number of investment strategies that have historically outperformed the S&P 500. Our small-cap hedge fund strategy outpaced the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have beaten the S&P 500 index by 33 percentage points in 11 months (find a sample of our picks).

Just as useful, positive insider trading sentiment is another way to look at the marketplace. There are a number of reasons for a bullish insider to sell shares of his or her company, but only one, very simple reason why they would buy. Various academic studies have demonstrated the impressive potential of this strategy if piggybackers know what to do (learn more here).

Furthermore, it’s important to examine the newest info surrounding Caterpillar Inc. (NYSE:CAT).

How are hedge funds trading Caterpillar Inc. (NYSE:CAT)?

Heading into Q3, a total of 29 of the hedge funds we track were bullish in this stock, a change of -19% from the first quarter. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their holdings significantly.

Out of the hedge funds we follow, Bill & Melinda Gates Foundation Trust, managed by Michael Larson, holds the biggest position in Caterpillar Inc. (NYSE:CAT). Bill & Melinda Gates Foundation Trust has a $887.7 million position in the stock, comprising 5% of its 13F portfolio. Sitting at the No. 2 spot is PEAK6 Capital Management, managed by Matthew Hulsizer, which held a $47.8 million call position; the fund has 0.2% of its 13F portfolio invested in the stock. Some other hedge funds with similar optimism include D. E. Shaw’s D E Shaw, Phill Gross and Robert Atchinson’s Adage Capital Management and Ken Griffin’s Citadel Investment Group.

As Caterpillar Inc. (NYSE:CAT) has experienced dropping sentiment from upper-tier hedge fund managers, we can see that there exists a select few hedgies that decided to sell off their entire stakes last quarter. Intriguingly, Jim Simons’s Renaissance Technologies said goodbye to the biggest investment of the “upper crust” of funds we watch, totaling an estimated $154.9 million in stock. Donald Chiboucis’s fund, Columbus Circle Investors, also dropped its stock, about $84.5 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 7 funds last quarter.

What have insiders been doing with Caterpillar Inc. (NYSE:CAT)?

Insider buying made by high-level executives is best served when the primary stock in question has experienced transactions within the past six months. Over the latest 180-day time frame, Caterpillar Inc. (NYSE:CAT) has seen zero unique insiders buying, and 1 insider sales (see the details of insider trades here).

We’ll check out the relationship between both of these indicators in other stocks similar to Caterpillar Inc. (NYSE:CAT). These stocks are Terex Corporation (NYSE:TEX), AGCO Corporation (NYSE:AGCO), Joy Global Inc. (NYSE:JOY), CNH Global NV (ADR) (NYSE:CNH), and Deere & Company (NYSE:DE). This group of stocks are in the farm & construction machinery industry and their market caps resemble CAT’s market cap.

Using the results explained by the previously mentioned research, regular investors must always pay attention to hedge fund and insider trading sentiment, and Caterpillar Inc. (NYSE:CAT) is an important part of this process.

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