The fourth quarter was a rough one for most investors, as fears of a rising interest rate environment in the U.S, a trade war with China, and a more or less stagnant Europe, weighed heavily on the minds of investors. Both the S&P 500 and Russell 2000 sank as a result, with the Russell 2000, which is composed of smaller companies, being hit especially hard. This was primarily due to hedge funds, which are big supporters of small-cap stocks, pulling some of their capital out of the volatile markets during this time. Let’s look at how this market volatility affected the sentiment of hedge funds towards Curtiss-Wright Corp. (NYSE:CW), and what that likely means for the prospects of the company and its stock.
Is Curtiss-Wright Corp. (NYSE:CW) a good stock to buy now? The smart money is taking a bullish view. The number of bullish hedge fund positions advanced by 1 in recent months. Our calculations also showed that CW isn’t among the 30 most popular stocks among hedge funds. CW was in 22 hedge funds’ portfolios at the end of September. There were 21 hedge funds in our database with CW positions at the end of the previous quarter.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 18 percentage points since May 2014 through December 3, 2018 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We’re going to take a look at the recent hedge fund action surrounding Curtiss-Wright Corp. (NYSE:CW).
What have hedge funds been doing with Curtiss-Wright Corp. (NYSE:CW)?
Heading into the fourth quarter of 2018, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CW over the last 13 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the largest position in Curtiss-Wright Corp. (NYSE:CW). AQR Capital Management has a $122 million position in the stock, comprising 0.1% of its 13F portfolio. On AQR Capital Management’s heels is GAMCO Investors, led by Mario Gabelli, holding a $94.5 million position; the fund has 0.6% of its 13F portfolio invested in the stock. Remaining professional money managers that hold long positions contain Israel Englander’s Millennium Management, D. E. Shaw’s D E Shaw and Noam Gottesman’s GLG Partners.
Consequently, specific money managers have been driving this bullishness. Algert Coldiron Investors, managed by Peter Algert and Kevin Coldiron, created the largest position in Curtiss-Wright Corp. (NYSE:CW). Algert Coldiron Investors had $1.4 million invested in the company at the end of the quarter. David Andre and Astro Teller’s Cerebellum Capital also initiated a $0.2 million position during the quarter. The only other fund with a brand new CW position is Matthew Hulsizer’s PEAK6 Capital Management.
Let’s go over hedge fund activity in other stocks similar to Curtiss-Wright Corp. (NYSE:CW). These stocks are Centennial Resource Development, Inc. (NASDAQ:CDEV), Ollie’s Bargain Outlet Holdings Inc (NASDAQ:OLLI), CPFL Energia S.A. (NYSE:CPL), and LivaNova PLC (NASDAQ:LIVN). All of these stocks’ market caps are closest to CW’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CDEV | 21 | 418805 | 2 |
| OLLI | 17 | 145804 | 2 |
| CPL | 2 | 12300 | 0 |
| LIVN | 30 | 532748 | 9 |
| Average | 17.5 | 277414 | 3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $277 million. That figure was $363 million in CW’s case. LivaNova PLC (NASDAQ:LIVN) is the most popular stock in this table. On the other hand CPFL Energia S.A. (NYSE:CPL) is the least popular one with only 2 bullish hedge fund positions. Curtiss-Wright Corp. (NYSE:CW) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard LIVN might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
