Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published this article and predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits.
Is Constellium NV (NYSE:CSTM) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Constellium NV (NYSE:CSTM) was in 50 hedge funds’ portfolios at the end of December. CSTM investors should pay attention to an increase in enthusiasm from smart money of late. There were 47 hedge funds in our database with CSTM positions at the end of the previous quarter. Our calculations also showed that CSTM isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 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 S&P 500 ETFs by 41 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.
Richard Driehaus of Driehaus Capital
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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. With all of this in mind we’re going to view the key hedge fund action encompassing Constellium NV (NYSE:CSTM).
What does smart money think about Constellium NV (NYSE:CSTM)?
At Q4’s end, a total of 50 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CSTM 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 Insider Monkey’s hedge fund database, Jared Nussbaum’s Nut Tree Capital has the most valuable position in Constellium NV (NYSE:CSTM), worth close to $40.2 million, comprising 18.3% of its total 13F portfolio. The second largest stake is held by Park West Asset Management, led by Peter S. Park, holding a $36.5 million position; the fund has 1.5% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism contain Richard Driehaus’s Driehaus Capital, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Mark Kingdon’s Kingdon Capital. In terms of the portfolio weights assigned to each position Nut Tree Capital allocated the biggest weight to Constellium NV (NYSE:CSTM), around 18.31% of its 13F portfolio. SkyTop Capital Management is also relatively very bullish on the stock, setting aside 14.24 percent of its 13F equity portfolio to CSTM.
As industrywide interest jumped, some big names were leading the bulls’ herd. DSAM Partners, managed by Guy Shahar, initiated the largest position in Constellium NV (NYSE:CSTM). DSAM Partners had $14.3 million invested in the company at the end of the quarter. Principal Global Investors’s Columbus Circle Investors also initiated a $6.3 million position during the quarter. The following funds were also among the new CSTM investors: Jay Genzer’s Thames Capital Management, Robert Vincent McHugh’s Jade Capital Advisors, and John Brennan’s Sirios Capital Management.
Let’s now take a look at hedge fund activity in other stocks similar to Constellium NV (NYSE:CSTM). We will take a look at TeleTech Holdings, Inc. (NASDAQ:TTEC), Kaman Corporation (NYSE:KAMN), Instructure, Inc. (NYSE:INST), and 8×8, Inc. (NASDAQ:EGHT). This group of stocks’ market valuations are closest to CSTM’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TTEC | 26 | 63403 | 12 |
| KAMN | 19 | 235851 | -3 |
| INST | 34 | 652643 | 16 |
| EGHT | 14 | 363912 | -11 |
| Average | 23.25 | 328952 | 3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $329 million. That figure was $429 million in CSTM’s case. Instructure, Inc. (NYSE:INST) is the most popular stock in this table. On the other hand 8×8, Inc. (NASDAQ:EGHT) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Constellium NV (NYSE:CSTM) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th and still beat the market by 1.9 percentage points. Unfortunately CSTM wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CSTM were disappointed as the stock returned -41.6% during the first two months of 2020 (through March 9th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
