Is Cadence Bancorporation (NYSE:CADE) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is Cadence Bancorporation (NYSE:CADE) a good investment today? The smart money is getting less bullish. The number of bullish hedge fund bets went down by 4 lately. Our calculations also showed that CADE isn’t among the 30 most popular stocks among hedge funds (view the video below). CADE was in 18 hedge funds’ portfolios at the end of June. There were 22 hedge funds in our database with CADE positions at the end of the previous quarter.
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a glance at the latest hedge fund action surrounding Cadence Bancorporation (NYSE:CADE).
What does smart money think about Cadence Bancorporation (NYSE:CADE)?
At the end of the second quarter, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from the first quarter of 2019. By comparison, 16 hedge funds held shares or bullish call options in CADE a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
More specifically, Diamond Hill Capital was the largest shareholder of Cadence Bancorporation (NYSE:CADE), with a stake worth $73.6 million reported as of the end of March. Trailing Diamond Hill Capital was Chilton Investment Company, which amassed a stake valued at $23.6 million. Two Sigma Advisors, Millennium Management, and Tudor Investment Corp were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Cadence Bancorporation (NYSE:CADE) has experienced a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of hedge funds who sold off their entire stakes heading into Q3. Interestingly, Ravi Chopra’s Azora Capital sold off the biggest investment of all the hedgies monitored by Insider Monkey, worth an estimated $10.9 million in stock. Gregg J. Powers’s fund, Private Capital Management, also dropped its stock, about $10.4 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 4 funds heading into Q3.
Let’s now review hedge fund activity in other stocks similar to Cadence Bancorporation (NYSE:CADE). We will take a look at Adtalem Global Education Inc. (NYSE:ATGE), Intercept Pharmaceuticals Inc (NASDAQ:ICPT), First Interstate Bancsystem Inc (NASDAQ:FIBK), and Box, Inc. (NYSE:BOX). All of these stocks’ market caps match CADE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ATGE | 14 | 203080 | -2 |
| ICPT | 24 | 402652 | 3 |
| FIBK | 11 | 66475 | 0 |
| BOX | 27 | 395491 | -5 |
| Average | 19 | 266925 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $267 million. That figure was $149 million in CADE’s case. Box, Inc. (NYSE:BOX) is the most popular stock in this table. On the other hand First Interstate Bancsystem Inc (NASDAQ:FIBK) is the least popular one with only 11 bullish hedge fund positions. Cadence Bancorporation (NYSE:CADE) 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CADE wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CADE investors were disappointed as the stock returned -14.7% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
