Conduent Incorporated (CNDT): Are Hedge Funds Right About This Stock?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Conduent Incorporated (NASDAQ:CNDT).

Is Conduent Incorporated (NASDAQ:CNDT) an excellent stock to buy now? Investors who are in the know were becoming more confident. The number of long hedge fund bets moved up by 1 lately. Conduent Incorporated (NASDAQ:CNDT) was in 23 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 45. Our calculations also showed that CNDT isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 22 hedge funds in our database with CNDT holdings at the end of March.

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. 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 79 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Carl Icahn of Icahn Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV 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. Keeping this in mind we’re going to take a look at the key hedge fund action encompassing Conduent Incorporated (NASDAQ:CNDT).

Do Hedge Funds Think CNDT Is A Good Stock To Buy Now?

Heading into the third quarter of 2021, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CNDT over the last 24 quarters. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Icahn Capital LP, managed by Carl Icahn, holds the most valuable position in Conduent Incorporated (NASDAQ:CNDT). Icahn Capital LP has a $286.1 million position in the stock, comprising 1.2% of its 13F portfolio. The second largest stake is held by D E Shaw, managed by D. E. Shaw, which holds a $23.7 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other members of the smart money that hold long positions encompass Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Renaissance Technologies and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Provenire Capital allocated the biggest weight to Conduent Incorporated (NASDAQ:CNDT), around 2.98% of its 13F portfolio. Rutabaga Capital Management is also relatively very bullish on the stock, dishing out 1.47 percent of its 13F equity portfolio to CNDT.

As aggregate interest increased, some big names have jumped into Conduent Incorporated (NASDAQ:CNDT) headfirst. Royce & Associates, managed by Chuck Royce, assembled the most valuable position in Conduent Incorporated (NASDAQ:CNDT). Royce & Associates had $3 million invested in the company at the end of the quarter. Anthony S. Daffer’s Provenire Capital also made a $0.9 million investment in the stock during the quarter. The only other fund with a new position in the stock is Paul Tudor Jones’s Tudor Investment Corp.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Conduent Incorporated (NASDAQ:CNDT) but similarly valued. We will take a look at Ocugen, Inc. (NASDAQ:OCGN), G-III Apparel Group, Ltd. (NASDAQ:GIII), Tenneco Inc (NYSE:TEN), Sturm, Ruger & Company, Inc. (NYSE:RGR), Danaos Corporation (NYSE:DAC), Primoris Services Corp (NASDAQ:PRIM), and Heron Therapeutics Inc (NASDAQ:HRTX). This group of stocks’ market caps resemble CNDT’s market cap.

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As you can see these stocks had an average of 17.4 hedge funds with bullish positions and the average amount invested in these stocks was $167 million. That figure was $387 million in CNDT’s case. Tenneco Inc (NYSE:TEN) is the most popular stock in this table. On the other hand Ocugen, Inc. (NASDAQ:OCGN) is the least popular one with only 10 bullish hedge fund positions. Conduent Incorporated (NASDAQ:CNDT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CNDT is 62. 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 24% in 2021 through October 22nd and beat the market again by 1.6 percentage points. Unfortunately CNDT wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on CNDT were disappointed as the stock returned -8.4% since the end of June (through 10/22) 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.