Hedge Funds Are Crazy About Caterpillar Inc. (CAT)

Caterpillar Inc. (NYSE:CAT) shareholders have witnessed an increase in enthusiasm from smart money of late.

If you’d ask most investors, hedge funds are perceived as worthless, outdated investment tools of the past. While there are more than 8000 funds in operation at present, we choose to focus on the crème de la crème of this club, around 450 funds. Most estimates calculate that this group has its hands on the majority of the hedge fund industry’s total capital, and by paying attention to their highest performing investments, we have spotted a number of investment strategies that have historically outpaced the broader indices. Our small-cap hedge fund strategy outstripped the S&P 500 index by 18 percentage points annually for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have trumped the S&P 500 index by 23.3 percentage points in 8 months (see all of our picks from August).

Equally as beneficial, optimistic insider trading activity is another way to parse down the investments you’re interested in. As the old adage goes: there are plenty of incentives for an executive to get rid of shares of his or her company, but just one, very simple reason why they would buy. Various academic studies have demonstrated the impressive potential of this strategy if you know where to look (learn more here).

With these “truths” under our belt, let’s take a gander at the key action encompassing Caterpillar Inc. (NYSE:CAT).

What does the smart money think about Caterpillar Inc. (NYSE:CAT)?

At the end of the first quarter, a total of 36 of the hedge funds we track were bullish in this stock, a change of 3% from the first quarter. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were upping their holdings meaningfully.

When looking at the hedgies we track, Michael Larson’s Bill & Melinda Gates Foundation Trust had the largest position in Caterpillar Inc. (NYSE:CAT), worth close to $892.4 million, accounting for 4.9% of its total 13F portfolio. On Bill & Melinda Gates Foundation Trust’s heels is Renaissance Technologies, managed by Jim Simons, which held a $154.9 million position; 0.4% of its 13F portfolio is allocated to the company. Some other hedgies that hold long positions include Donald Chiboucis’s Columbus Circle Investors, Phill Gross and Robert Atchinson’s Adage Capital Management and Ken Griffin’s Citadel Investment Group.

As industrywide interest jumped, some big names were leading the bulls’ herd. Stevens Capital Management, managed by Matthew Tewksbury, assembled the most outsized position in Caterpillar Inc. (NYSE:CAT). Stevens Capital Management had 39.5 million invested in the company at the end of the quarter. Michael Platt and William Reeves’s BlueCrest Capital Mgmt. also made a $17.4 million investment in the stock during the quarter. The other funds with brand new CAT positions are John Fichthorn’s Dialectic Capital Management, Matt Sirovich and Jeremy Mindich’s Scopia Capital, and Bart Baum’s Ionic Capital Management.

What do corporate executives and insiders think about Caterpillar Inc. (NYSE:CAT)?

Bullish insider trading is particularly usable when the company in focus has experienced transactions within the past 180 days. Over the latest 180-day time frame, Caterpillar Inc. (NYSE:CAT) has experienced zero unique insiders purchasing, and 5 insider sales (see the details of insider trades here).

Let’s go over hedge fund and insider activity in other stocks similar to Caterpillar Inc. (NYSE:CAT). These stocks are Terex Corporation (NYSE:TEX), AGCO Corporation (NYSE:AGCO), Joy Global Inc. (NYSE:JOY), CNH Global NV (ADR) (NYSE:CNH), and Deere & Company (NYSE:DE). This group of stocks are in the 0 industry and their market caps are similar to CAT’s market cap.