Hedge Fund Sentiment Is Stagnant On CoreCivic, Inc. (CXW)

Billionaire hedge fund managers such as David Abrams, Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the nearly unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.

CoreCivic, Inc. (NYSE:CXW) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 14 hedge funds’ portfolios at the end of the second quarter of 2019. 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 H.B. Fuller Company (NYSE:FUL), GSX Techedu Inc. (NYSE:GSX), and Emergent Biosolutions Inc (NYSE:EBS) to gather more data points. Our calculations also showed that CXW isn’t among the 30 most popular stocks among hedge funds (view the video below).

Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a peek at the recent hedge fund action encompassing CoreCivic, Inc. (NYSE:CXW).

How have hedgies been trading CoreCivic, Inc. (NYSE:CXW)?

Heading into the third quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the first quarter of 2019. By comparison, 15 hedge funds held shares or bullish call options in CXW a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in CoreCivic, Inc. (NYSE:CXW), which was worth $80.7 million at the end of the second quarter. On the second spot was Capital Growth Management which amassed $34.4 million worth of shares. Moreover, Two Sigma Advisors, D E Shaw, and Millennium Management were also bullish on CoreCivic, Inc. (NYSE:CXW), allocating a large percentage of their portfolios to this stock.

Judging by the fact that CoreCivic, Inc. (NYSE:CXW) has faced a decline in interest from the smart money, we can see that there is a sect of hedge funds who were dropping their entire stakes heading into Q3. It’s worth mentioning that David M. Knott’s Dorset Management cut the biggest investment of the “upper crust” of funds watched by Insider Monkey, comprising close to $1.5 million in stock. Matthew Tewksbury’s fund, Stevens Capital Management, also dumped its stock, about $0.6 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 go over hedge fund activity in other stocks similar to CoreCivic, Inc. (NYSE:CXW). We will take a look at H.B. Fuller Company (NYSE:FUL), GSX Techedu Inc. (NYSE:GSX), Emergent Biosolutions Inc (NYSE:EBS), and Baozun Inc (NASDAQ:BZUN). This group of stocks’ market valuations match CXW’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $92 million. That figure was $147 million in CXW’s case. Emergent Biosolutions Inc (NYSE:EBS) is the most popular stock in this table. On the other hand GSX Techedu Inc. (NYSE:GSX) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks CoreCivic, Inc. (NYSE:CXW) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CXW wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CXW were disappointed as the stock returned -14.6% during the third quarter and underperformed 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 in Q3.

Disclosure: None. This article was originally published at Insider Monkey.