Hedge Funds Are Warming Up To Canadian Pacific Railway Limited (CP)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 821 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of March 31st, 2020. In this article we are going to take a look at smart money sentiment towards Canadian Pacific Railway Limited (NYSE:CP).

Is Canadian Pacific Railway Limited (NYSE:CP) the right investment to pursue these days? The smart money is buying. The number of long hedge fund positions inched up by 3 recently. Our calculations also showed that CP isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). CP was in 32 hedge funds’ portfolios at the end of the first quarter of 2020. There were 29 hedge funds in our database with CP positions at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 51 percentage points since March 2017 (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 stocks that are in our short portfolio.

John Armitage of Egerton Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a gander at the fresh hedge fund action surrounding Canadian Pacific Railway Limited (NYSE:CP).

What does smart money think about Canadian Pacific Railway Limited (NYSE:CP)?

At Q1’s end, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CP over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, John Armitage’s Egerton Capital Limited has the number one position in Canadian Pacific Railway Limited (NYSE:CP), worth close to $702.3 million, comprising 7.3% of its total 13F portfolio. The second most bullish fund manager is Lone Pine Capital, which holds a $500.5 million position; 3% of its 13F portfolio is allocated to the company. Remaining professional money managers that hold long positions contain Ken Griffin’s Citadel Investment Group, Brandon Haley’s Holocene Advisors and Stephen J. Errico’s Locust Wood Capital Advisers. In terms of the portfolio weights assigned to each position SAYA Management allocated the biggest weight to Canadian Pacific Railway Limited (NYSE:CP), around 8.24% of its 13F portfolio. Heronetta Management is also relatively very bullish on the stock, designating 7.41 percent of its 13F equity portfolio to CP.

Consequently, specific money managers have jumped into Canadian Pacific Railway Limited (NYSE:CP) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the most valuable position in Canadian Pacific Railway Limited (NYSE:CP). Arrowstreet Capital had $17.9 million invested in the company at the end of the quarter. Renaissance Technologies also made a $15.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Anand More’s SAYA Management, Joel Greenblatt’s Gotham Asset Management, and Anand Parekh’s Alyeska Investment Group.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Canadian Pacific Railway Limited (NYSE:CP) but similarly valued. These stocks are The Bank of New York Mellon Corporation (NYSE:BK), Mizuho Financial Group Inc. (NYSE:MFG), Dell Technologies Inc. (NYSE:DELL), and Emerson Electric Co. (NYSE:EMR). This group of stocks’ market caps are similar to CP’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.5 hedge funds with bullish positions and the average amount invested in these stocks was $1707 million. That figure was $1569 million in CP’s case. The Bank of New York Mellon Corporation (NYSE:BK) is the most popular stock in this table. On the other hand Mizuho Financial Group Inc. (NYSE:MFG) is the least popular one with only 6 bullish hedge fund positions. Canadian Pacific Railway Limited (NYSE:CP) is not the least popular stock in this group but hedge fund interest is still below average. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May and surpassed the market by 13.2 percentage points. Unfortunately CP wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); CP investors were disappointed as the stock returned 13.7% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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