While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Celestica Inc. (NYSE:CLS).
Is Celestica Inc. (NYSE:CLS) a buy right now? Hedge funds are turning bullish. The number of bullish hedge fund positions moved up by 1 recently. Our calculations also showed that CLS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Richard S. Pzena of Pzena Investment Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a look at the fresh hedge fund action surrounding Celestica Inc. (NYSE:CLS).
What have hedge funds been doing with Celestica Inc. (NYSE:CLS)?
Heading into the fourth quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from one quarter earlier. On the other hand, there were a total of 17 hedge funds with a bullish position in CLS a year ago. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
More specifically, Pzena Investment Management was the largest shareholder of Celestica Inc. (NYSE:CLS), with a stake worth $33.7 million reported as of the end of September. Trailing Pzena Investment Management was Hawk Ridge Management, which amassed a stake valued at $12.8 million. Arrowstreet Capital, D E Shaw, and Moab Capital Partners 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 Hawk Ridge Management allocated the biggest weight to Celestica Inc. (NYSE:CLS), around 2.56% of its 13F portfolio. Moab Capital Partners is also relatively very bullish on the stock, dishing out 1.07 percent of its 13F equity portfolio to CLS.
Consequently, some big names were leading the bulls’ herd. Point72 Asset Management, managed by Steve Cohen, initiated the biggest position in Celestica Inc. (NYSE:CLS). Point72 Asset Management had $0.2 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $0.1 million investment in the stock during the quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Celestica Inc. (NYSE:CLS) but similarly valued. These stocks are ConnectOne Bancorp Inc (NASDAQ:CNOB), Despegar.com, Corp. (NYSE:DESP), Camping World Holdings, Inc. (NYSE:CWH), and Comtech Telecommunications Corp. (NASDAQ:CMTL). All of these stocks’ market caps match CLS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CNOB | 12 | 48484 | 3 |
| DESP | 11 | 150886 | -1 |
| CWH | 12 | 95452 | 3 |
| CMTL | 19 | 99512 | 2 |
| Average | 13.5 | 98584 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $99 million. That figure was $69 million in CLS’s case. Comtech Telecommunications Corp. (NASDAQ:CMTL) is the most popular stock in this table. On the other hand Despegar.com, Corp. (NYSE:DESP) is the least popular one with only 11 bullish hedge fund positions. Celestica Inc. (NYSE:CLS) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on CLS, though not to the same extent, as the stock returned 8.1% during the first two months of the fourth quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.
