We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Cognizant Technology Solutions Corp (NASDAQ:CTSH).
Cognizant Technology Solutions Corp (NASDAQ:CTSH) was in 43 hedge funds’ portfolios at the end of the fourth quarter of 2019. CTSH has seen a decrease in hedge fund sentiment lately. There were 48 hedge funds in our database with CTSH positions at the end of the previous quarter. Our calculations also showed that CTSH isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
If you’d ask most shareholders, hedge funds are seen as underperforming, outdated investment tools of the past. While there are over 8000 funds trading at the moment, We hone in on the bigwigs of this group, around 850 funds. These hedge fund managers watch over the majority of all hedge funds’ total capital, and by keeping track of their highest performing investments, Insider Monkey has figured out numerous investment strategies that have historically outstripped the market. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
David Blood of Generation Investment Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to view the latest hedge fund action surrounding Cognizant Technology Solutions Corp (NASDAQ:CTSH).
How are hedge funds trading Cognizant Technology Solutions Corp (NASDAQ:CTSH)?
At Q4’s end, a total of 43 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CTSH over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Cognizant Technology Solutions Corp (NASDAQ:CTSH) was held by Generation Investment Management, which reported holding $927.1 million worth of stock at the end of September. It was followed by Pzena Investment Management with a $549.8 million position. Other investors bullish on the company included Citadel Investment Group, AQR Capital Management, and Yacktman Asset Management. In terms of the portfolio weights assigned to each position Broad Peak Investment Holdings allocated the biggest weight to Cognizant Technology Solutions Corp (NASDAQ:CTSH), around 14.29% of its 13F portfolio. Generation Investment Management is also relatively very bullish on the stock, setting aside 5.93 percent of its 13F equity portfolio to CTSH.
Due to the fact that Cognizant Technology Solutions Corp (NASDAQ:CTSH) has witnessed declining sentiment from the aggregate hedge fund industry, it’s safe to say that there lies a certain “tier” of hedge funds that decided to sell off their positions entirely heading into Q4. At the top of the heap, Michael Lowenstein’s Kensico Capital dropped the largest stake of the 750 funds watched by Insider Monkey, totaling an estimated $56.6 million in stock. Guardian Capital’s fund, GuardCap Asset Management, also cut its stock, about $31.7 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 5 funds heading into Q4.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Cognizant Technology Solutions Corp (NASDAQ:CTSH) but similarly valued. We will take a look at China Telecom Corporation Limited (NYSE:CHA), Xcel Energy Inc (NASDAQ:XEL), Credit Suisse Group AG (NYSE:CS), and Tyson Foods, Inc. (NYSE:TSN). This group of stocks’ market values match CTSH’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CHA | 7 | 23480 | -2 |
| XEL | 15 | 394141 | -3 |
| CS | 10 | 229482 | -4 |
| TSN | 58 | 2187017 | 5 |
| Average | 22.5 | 708530 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $709 million. That figure was $2936 million in CTSH’s case. Tyson Foods, Inc. (NYSE:TSN) is the most popular stock in this table. On the other hand China Telecom Corporation Limited (NYSE:CHA) is the least popular one with only 7 bullish hedge fund positions. Cognizant Technology Solutions Corp (NASDAQ:CTSH) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but still beat the market by 5.5 percentage points. Hedge funds were also right about betting on CTSH, though not to the same extent, as the stock returned -22.9% during the first two and a half months of 2020 (through March 25th) and outperformed the market as well.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
