Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 57%. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 41.3% in 2019 and outperformed the broader market benchmark by 10.1 percentage points. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Cott Corporation (NYSE:COT) the right pick for your portfolio? The smart money is turning less bullish. The number of bullish hedge fund positions fell by 1 in recent months. Our calculations also showed that COT 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). COT was in 26 hedge funds’ portfolios at the end of September. There were 27 hedge funds in our database with COT positions at the end of the previous quarter.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Israel Englander of Millennium Management
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. With all of this in mind we’re going to review the key hedge fund action surrounding Cott Corporation (NYSE:COT).
How have hedgies been trading Cott Corporation (NYSE:COT)?
At Q3’s end, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from the previous quarter. The graph below displays the number of hedge funds with bullish position in COT over the last 17 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.
More specifically, Nitorum Capital was the largest shareholder of Cott Corporation (NYSE:COT), with a stake worth $131.4 million reported as of the end of September. Trailing Nitorum Capital was Levin Easterly Partners, which amassed a stake valued at $124.8 million. P2 Capital Partners, Interval Partners, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Nitorum Capital allocated the biggest weight to Cott Corporation (NYSE:COT), around 7.65% of its 13F portfolio. P2 Capital Partners is also relatively very bullish on the stock, dishing out 5.37 percent of its 13F equity portfolio to COT.
Seeing as Cott Corporation (NYSE:COT) has witnessed a decline in interest from hedge fund managers, we can see that there exists a select few funds that decided to sell off their entire stakes last quarter. It’s worth mentioning that Joseph Mathias’s Concourse Capital Management cut the biggest stake of all the hedgies followed by Insider Monkey, worth close to $1.5 million in stock. Paul Tudor Jones’s fund, Tudor Investment Corp, also dumped its stock, about $0.7 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 1 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Cott Corporation (NYSE:COT) but similarly valued. We will take a look at Usa Compression Partners LP (NYSE:USAC), Veoneer, Inc. (NASDAQ:VNE), U.S. Physical Therapy, Inc. (NYSE:USPH), and Calavo Growers, Inc. (NASDAQ:CVGW). This group of stocks’ market valuations match COT’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| USAC | 4 | 5116 | 1 |
| VNE | 10 | 149807 | -2 |
| USPH | 12 | 64630 | 1 |
| CVGW | 17 | 108346 | 2 |
| Average | 10.75 | 81975 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $82 million. That figure was $588 million in COT’s case. Calavo Growers, Inc. (NASDAQ:CVGW) is the most popular stock in this table. On the other hand Usa Compression Partners LP (NYSE:USAC) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Cott Corporation (NYSE:COT) is more popular among hedge funds. 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 COT wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on COT were disappointed as the stock returned -0.1% 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 65 percent of these stocks outperformed the market in 2019.
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.
