Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients’ money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth depends on it. Regardless of the various methods used by elite investors like David Tepper and Dan Loeb, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space.
Is Cubic Corporation (NYSE:CUB) a sound investment now? Hedge funds are buying. The number of long hedge fund positions went up by 5 lately. Our calculations also showed that CUB isn’t among the 30 most popular stocks among hedge funds. CUB was in 18 hedge funds’ portfolios at the end of the third quarter of 2018. There were 13 hedge funds in our database with CUB positions at the end of the previous quarter.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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.
Let’s take a look at the recent hedge fund action regarding Cubic Corporation (NYSE:CUB).
Hedge fund activity in Cubic Corporation (NYSE:CUB)
At the end of the third quarter, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 38% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CUB over the last 13 quarters. So, let’s see 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, Mariko Gordon’s Daruma Asset Management has the number one position in Cubic Corporation (NYSE:CUB), worth close to $38.5 million, amounting to 3.6% of its total 13F portfolio. Coming in second is Rutabaga Capital Management, managed by Peter Schliemann, which holds a $16 million position; 3.7% of its 13F portfolio is allocated to the company. Some other members of the smart money with similar optimism encompass Richard S. Pzena’s Pzena Investment Management, Martin Whitman’s Third Avenue Management and Ken Griffin’s Citadel Investment Group.
With a general bullishness amongst the heavyweights, some big names were leading the bulls’ herd. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, assembled the most outsized position in Cubic Corporation (NYSE:CUB). Marshall Wace LLP had $6 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $2.5 million position during the quarter. The other funds with brand new CUB positions are Richard Driehaus’s Driehaus Capital, Chuck Royce’s Royce & Associates, and Joel Greenblatt’s Gotham Asset Management.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Cubic Corporation (NYSE:CUB) but similarly valued. These stocks are Gold Fields Limited (NYSE:GFI), Lexington Realty Trust (NYSE:LXP), Oil States International, Inc. (NYSE:OIS), and 8×8, Inc. (NASDAQ:EGHT). This group of stocks’ market caps match CUB’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GFI | 10 | 61577 | -2 |
| LXP | 13 | 49136 | 0 |
| OIS | 11 | 37638 | 2 |
| EGHT | 18 | 155881 | 0 |
| Average | 13 | 76058 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $76 million. That figure was $103 million in CUB’s case. 8×8, Inc. (NASDAQ:EGHT) is the most popular stock in this table. On the other hand Gold Fields Limited (NYSE:GFI) is the least popular one with only 10 bullish hedge fund positions. Cubic Corporation (NYSE:CUB) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard EGHT might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
