Hedge Funds Have Never Been This Bullish On Canadian National Railway Company (CNI)

In this article we will analyze whether Canadian National Railway Company (NYSE:CNI) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.

Canadian National Railway Company (NYSE:CNI) was in 36 hedge funds’ portfolios at the end of March. The all time high for this statistic was previously 31. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. CNI investors should pay attention to an increase in activity from the world’s largest hedge funds lately. There were 31 hedge funds in our database with CNI holdings at the end of December. Our calculations also showed that CNI isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 S&P 500 ETFs by 115 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.

Clint Carlson of Carlson Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best battery 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. 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 let’s analyze the fresh hedge fund action surrounding Canadian National Railway Company (NYSE:CNI).

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

At first quarter’s end, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 16% from one quarter earlier. On the other hand, there were a total of 26 hedge funds with a bullish position in CNI a year ago. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Chris Hohn’s TCI Fund Management has the largest position in Canadian National Railway Company (NYSE:CNI), worth close to $2.4108 billion, accounting for 7% of its total 13F portfolio. The second largest stake is held by Bill & Melinda Gates Foundation Trust, led by Michael Larson, holding a $1.613 billion position; the fund has 7.7% of its 13F portfolio invested in the stock. Remaining peers with similar optimism contain Ken Griffin’s Citadel Investment Group, Dmitry Balyasny’s Balyasny Asset Management and Steve Cohen’s Point72 Asset Management. In terms of the portfolio weights assigned to each position Bill & Melinda Gates Foundation Trust allocated the biggest weight to Canadian National Railway Company (NYSE:CNI), around 7.7% of its 13F portfolio. TCI Fund Management is also relatively very bullish on the stock, earmarking 7 percent of its 13F equity portfolio to CNI.

Consequently, key hedge funds were leading the bulls’ herd. Two Sigma Advisors, managed by John Overdeck and David Siegel, initiated the most valuable position in Canadian National Railway Company (NYSE:CNI). Two Sigma Advisors had $54.5 million invested in the company at the end of the quarter. Alexander Mitchell’s Scopus Asset Management also initiated a $34.8 million position during the quarter. The other funds with brand new CNI positions are Jaime Sterne’s Skye Global Management, Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management, and Clint Carlson’s Carlson Capital.

Let’s check out hedge fund activity in other stocks similar to Canadian National Railway Company (NYSE:CNI). These stocks are Gilead Sciences, Inc. (NASDAQ:GILD), Automatic Data Processing, Inc. (NASDAQ:ADP), Fiserv, Inc. (NASDAQ:FISV), Infosys Limited (NYSE:INFY), The TJX Companies, Inc. (NYSE:TJX), Snap Inc. (NYSE:SNAP), and Prologis Inc (NYSE:PLD). This group of stocks’ market valuations are similar to CNI’s market valuation.

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As you can see these stocks had an average of 54.7 hedge funds with bullish positions and the average amount invested in these stocks was $2545 million. That figure was $4705 million in CNI’s case. Fiserv, Inc. (NASDAQ:FISV) is the most popular stock in this table. On the other hand Infosys Limited (NYSE:INFY) is the least popular one with only 26 bullish hedge fund positions. Canadian National Railway Company (NYSE:CNI) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CNI is 50.2. 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 19.3% in 2021 through June 25th and surpassed the market again by 4.8 percentage points. Unfortunately CNI wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); CNI investors were disappointed as the stock returned -8.1% since the end of March (through 6/25) 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.