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 Cowen Inc. (NASDAQ:COWN) and determine whether hedge funds had an edge regarding this stock.
Cowen Inc. (NASDAQ:COWN) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 18 hedge funds’ portfolios at the end of June. Our calculations also showed that COWN isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Heritage Commerce Corp. (NASDAQ:HTBK), Meet Group Inc (NYSE:MEET), and AMC Entertainment Holdings Inc (NYSE:AMC) to gather more data points. Our calculations also showed that COWN isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are dozens of gauges investors use to assess their holdings. Some of the best gauges are hedge fund and insider trading signals. We have shown that, historically, those who follow the top picks of the best hedge fund managers can outclass the S&P 500 by a solid amount (see the details here).
John Rogers of Ariel Investments
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Keeping this in mind let’s go over the new hedge fund action surrounding Cowen Inc. (NASDAQ:COWN).
How are hedge funds trading Cowen Inc. (NASDAQ:COWN)?
At Q2’s end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in COWN over the last 20 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, Arbiter Partners Capital Management was the largest shareholder of Cowen Inc. (NASDAQ:COWN), with a stake worth $31.6 million reported as of the end of September. Trailing Arbiter Partners Capital Management was D E Shaw, which amassed a stake valued at $11.4 million. Pzena Investment Management, Ariel Investments, 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 Arbiter Partners Capital Management allocated the biggest weight to Cowen Inc. (NASDAQ:COWN), around 2.52% of its 13F portfolio. Azora Capital is also relatively very bullish on the stock, earmarking 0.9 percent of its 13F equity portfolio to COWN.
Due to the fact that Cowen Inc. (NASDAQ:COWN) has witnessed declining sentiment from the smart money, we can see that there were a few fund managers that slashed their entire stakes by the end of the second quarter. At the top of the heap, Matthew Hulsizer’s PEAK6 Capital Management said goodbye to the biggest position of all the hedgies monitored by Insider Monkey, comprising about $3.4 million in stock, and Steve Cohen’s Point72 Asset Management was right behind this move, as the fund sold off about $1.2 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks similar to Cowen Inc. (NASDAQ:COWN). We will take a look at Heritage Commerce Corp. (NASDAQ:HTBK), Meet Group Inc (NYSE:MEET), AMC Entertainment Holdings Inc (NYSE:AMC), Enova International Inc (NYSE:ENVA), Clean Energy Fuels Corp (NASDAQ:CLNE), Arrow Financial Corporation (NASDAQ:AROW), and Dorchester Minerals LP (NASDAQ:DMLP). This group of stocks’ market valuations are similar to COWN’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HTBK | 11 | 17079 | 2 |
| MEET | 19 | 68109 | -2 |
| AMC | 8 | 1307 | -6 |
| ENVA | 21 | 87357 | 4 |
| CLNE | 11 | 23539 | 3 |
| AROW | 3 | 13185 | -1 |
| DMLP | 6 | 17949 | 0 |
| Average | 11.3 | 32646 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.3 hedge funds with bullish positions and the average amount invested in these stocks was $33 million. That figure was $99 million in COWN’s case. Enova International Inc (NYSE:ENVA) is the most popular stock in this table. On the other hand Arrow Financial Corporation (NASDAQ:AROW) is the least popular one with only 3 bullish hedge fund positions. Cowen Inc. (NASDAQ:COWN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for COWN is 72.4. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately COWN wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on COWN were disappointed as the stock returned 0.6% in Q3 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Follow Cowen Inc. (NASDAQ:COWN)
Follow Cowen Inc. (NASDAQ:COWN)
Disclosure: None. This article was originally published at Insider Monkey.
