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 750 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 Comerica Incorporated (NYSE:CMA) and compare its performance to hedge funds’ consensus picks in 2019.
Is Comerica Incorporated (NYSE:CMA) a worthy investment now? Money managers are taking a bearish view. The number of bullish hedge fund positions were trimmed by 4 recently. Our calculations also showed that CMA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
According to most investors, hedge funds are seen as underperforming, outdated financial tools of years past. While there are more than 8000 funds with their doors open at the moment, We look at the elite of this club, around 750 funds. Most estimates calculate that this group of people control the lion’s share of the hedge fund industry’s total asset base, and by shadowing their matchless picks, Insider Monkey has determined many investment strategies that have historically outpaced Mr. Market. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points a year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
John Overdeck of Two Sigma Advisors
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. Now we’re going to view the fresh hedge fund action encompassing Comerica Incorporated (NYSE:CMA).
How are hedge funds trading Comerica Incorporated (NYSE:CMA)?
At Q3’s end, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CMA over the last 17 quarters. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the number one position in Comerica Incorporated (NYSE:CMA). AQR Capital Management has a $91.3 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is John Overdeck and David Siegel of Two Sigma Advisors, with a $88.1 million position; 0.2% of its 13F portfolio is allocated to the company. Some other professional money managers with similar optimism contain Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Israel Englander’s Millennium Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Third Avenue Management allocated the biggest weight to Comerica Incorporated (NYSE:CMA), around 2.26% of its 13F portfolio. Prospector Partners is also relatively very bullish on the stock, earmarking 0.88 percent of its 13F equity portfolio to CMA.
Seeing as Comerica Incorporated (NYSE:CMA) has witnessed declining sentiment from the smart money, logic holds that there exists a select few hedge funds who sold off their full holdings last quarter. At the top of the heap, Renaissance Technologies said goodbye to the biggest position of all the hedgies watched by Insider Monkey, totaling an estimated $16.1 million in call options. Gregg Moskowitz’s fund, Interval Partners, also dropped its call options, about $8.7 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 4 funds last quarter.
Let’s now review hedge fund activity in other stocks similar to Comerica Incorporated (NYSE:CMA). We will take a look at Teradyne, Inc. (NASDAQ:TER), Datadog, Inc. (NASDAQ:DDOG), The Western Union Company (NYSE:WU), and Autohome Inc (NYSE:ATHM). This group of stocks’ market valuations match CMA’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TER | 31 | 1128584 | 4 |
| DDOG | 39 | 208582 | 39 |
| WU | 20 | 413091 | -3 |
| ATHM | 10 | 1157371 | -6 |
| Average | 25 | 726907 | 8.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $727 million. That figure was $468 million in CMA’s case. Datadog, Inc. (NASDAQ:DDOG) is the most popular stock in this table. On the other hand Autohome Inc (NYSE:ATHM) is the least popular one with only 10 bullish hedge fund positions. Comerica Incorporated (NYSE:CMA) is not the most popular stock in this group but hedge fund interest is still above average. 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 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. Unfortunately CMA wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CMA were disappointed as the stock returned 8.5% in 2019 and trailed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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.
