Hedge Funds Are Dumping Cummins Inc. (CMI)

In this article you are going to find out whether hedge funds think Cummins Inc. (NYSE:CMI) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is Cummins Inc. (NYSE:CMI) a marvelous investment now? The best stock pickers were reducing their bets on the stock. The number of bullish hedge fund bets decreased by 15 recently. Cummins Inc. (NYSE:CMI) was in 30 hedge funds’ portfolios at the end of September. The all time high for this statistic is 49. Our calculations also showed that CMI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks 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. Now we’re going to take a look at the key hedge fund action regarding Cummins Inc. (NYSE:CMI).

David E. Shaw of D.E. Shaw

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

At the end of the third quarter, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of -33% from the second quarter of 2021. Below, you can check out the change in hedge fund sentiment towards CMI over the last 25 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, AQR Capital Management was the largest shareholder of Cummins Inc. (NYSE:CMI), with a stake worth $249.1 million reported as of the end of September. Trailing AQR Capital Management was GLG Partners, which amassed a stake valued at $237.9 million. Millennium Management, D E Shaw, and Citadel Investment Group 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 Socorro Asset Management allocated the biggest weight to Cummins Inc. (NYSE:CMI), around 4.4% of its 13F portfolio. Beech Hill Partners is also relatively very bullish on the stock, designating 1.05 percent of its 13F equity portfolio to CMI.

Judging by the fact that Cummins Inc. (NYSE:CMI) has faced falling interest from the smart money, it’s easy to see that there is a sect of hedgies who sold off their full holdings by the end of the third quarter. Intriguingly, Stanley Druckenmiller’s Duquesne Capital sold off the biggest investment of all the hedgies watched by Insider Monkey, worth about $79.2 million in stock. Doug Gordon, Jon Hilsabeck and Don Jabro’s fund, Shellback Capital, also dropped its stock, about $34.4 million worth. These moves are interesting, as total hedge fund interest fell by 15 funds by the end of the third quarter.

Let’s check out hedge fund activity in other stocks similar to Cummins Inc. (NYSE:CMI). These stocks are Barrick Gold Corporation (NYSE:GOLD), Rocket Companies, Inc. (NYSE:RKT), Mettler-Toledo International Inc. (NYSE:MTD), HubSpot Inc (NYSE:HUBS), HP Inc. (NYSE:HPQ), The Williams Companies, Inc. (NYSE:WMB), and West Pharmaceutical Services Inc. (NYSE:WST). This group of stocks’ market values match CMI’s market value.

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As you can see these stocks had an average of 34.3 hedge funds with bullish positions and the average amount invested in these stocks was $1070 million. That figure was $830 million in CMI’s case. HubSpot Inc (NYSE:HUBS) is the most popular stock in this table. On the other hand Rocket Companies, Inc. (NYSE:RKT) is the least popular one with only 17 bullish hedge fund positions. Cummins Inc. (NYSE:CMI) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CMI is 29.3. 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 28.6% in 2021 through November 30th and surpassed the market again by 5.6 percentage points. Unfortunately CMI wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); CMI investors were disappointed as the stock returned -6% since the end of September (through 11/30) 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.