Hedge Funds Are Dumping Cornerstone Building Brands, Inc. (CNR)

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Cornerstone Building Brands, Inc. (NYSE:CNR).

Is Cornerstone Building Brands, Inc. (NYSE:CNR) a healthy stock for your portfolio? The smart money was getting less bullish. The number of bullish hedge fund positions were trimmed by 7 in recent months. Cornerstone Building Brands, Inc. (NYSE:CNR) was in 20 hedge funds’ portfolios at the end of June. The all time high for this statistic is 28. Our calculations also showed that CNR isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Peter Rathjens of Arrowstreet Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, plant based food market is expected to explode 100-fold by 2050, so we are checking out this under-the radar stock. We go through lists like the 10 best growth stocks to buy to pick the next Tesla that will deliver a 10x return. 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 homepage. Now we’re going to take a gander at the fresh hedge fund action encompassing Cornerstone Building Brands, Inc. (NYSE:CNR).

Do Hedge Funds Think CNR Is A Good Stock To Buy Now?

At second quarter’s end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -26% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in CNR over the last 24 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Guardian Point Capital was the largest shareholder of Cornerstone Building Brands, Inc. (NYSE:CNR), with a stake worth $36.4 million reported as of the end of June. Trailing Guardian Point Capital was King Street Capital, which amassed a stake valued at $25.5 million. Renaissance Technologies, Voss Capital, and Arrowstreet Capital 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 Guardian Point Capital allocated the biggest weight to Cornerstone Building Brands, Inc. (NYSE:CNR), around 8.24% of its 13F portfolio. Voss Capital is also relatively very bullish on the stock, earmarking 5.45 percent of its 13F equity portfolio to CNR.

Judging by the fact that Cornerstone Building Brands, Inc. (NYSE:CNR) has witnessed falling interest from the aggregate hedge fund industry, logic holds that there were a few money managers that elected to cut their full holdings last quarter. It’s worth mentioning that Frank Fu’s CaaS Capital dropped the biggest investment of the 750 funds monitored by Insider Monkey, comprising about $25.2 million in stock, and Paul Tudor Jones’s Tudor Investment Corp was right behind this move, as the fund sold off about $5.1 million worth. These moves are interesting, as total hedge fund interest was cut by 7 funds last quarter.

Let’s also examine hedge fund activity in other stocks similar to Cornerstone Building Brands, Inc. (NYSE:CNR). These stocks are Winnebago Industries, Inc. (NYSE:WGO), Coeur Mining, Inc. (NYSE:CDE), Inter Parfums, Inc. (NASDAQ:IPAR), Avaya Holdings Corp. (NYSE:AVYA), Harmony Gold Mining Company Limited (NYSE:HMY), Hub Group Inc (NASDAQ:HUBG), and Prothena Corporation plc (NASDAQ:PRTA). All of these stocks’ market caps match CNR’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $310 million. That figure was $153 million in CNR’s case. Avaya Holdings Corp. (NYSE:AVYA) is the most popular stock in this table. On the other hand Harmony Gold Mining Company Limited (NYSE:HMY) is the least popular one with only 11 bullish hedge fund positions. Cornerstone Building Brands, Inc. (NYSE:CNR) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CNR is 36.7. 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 negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and surpassed the market again by 1.6 percentage points. Unfortunately CNR wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); CNR investors were disappointed as the stock returned -20.7% since the end of June (through 10/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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