Is CATY A Good Stock To Buy Now?

A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended September 30, so let’s proceed with the discussion of the hedge fund sentiment on Cathay General Bancorp (NASDAQ:CATY).

Is CATY a good stock to buy now? Cathay General Bancorp (NASDAQ:CATY) was in 17 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 18. CATY has seen an increase in enthusiasm from smart money in recent months. There were 11 hedge funds in our database with CATY positions at the end of the second quarter. Our calculations also showed that CATY isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 66 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Paul Tudor Jones of Tudor Investment Corp

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 website. With all of this in mind we’re going to take a glance at the recent hedge fund action regarding Cathay General Bancorp (NASDAQ:CATY).

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

Heading into the fourth quarter of 2020, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 55% from one quarter earlier. On the other hand, there were a total of 18 hedge funds with a bullish position in CATY a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

More specifically, Citadel Investment Group was the largest shareholder of Cathay General Bancorp (NASDAQ:CATY), with a stake worth $13.3 million reported as of the end of September. Trailing Citadel Investment Group was Arrowstreet Capital, which amassed a stake valued at $11.5 million. AQR Capital Management, Renaissance Technologies, and D E Shaw 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 AlphaCrest Capital Management allocated the biggest weight to Cathay General Bancorp (NASDAQ:CATY), around 0.03% of its 13F portfolio. Tudor Investment Corp is also relatively very bullish on the stock, earmarking 0.03 percent of its 13F equity portfolio to CATY.

Now, some big names were breaking ground themselves. D E Shaw, managed by D. E. Shaw, established the largest position in Cathay General Bancorp (NASDAQ:CATY). D E Shaw had $2.3 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also made a $0.6 million investment in the stock during the quarter. The other funds with brand new CATY positions are Paul Marshall and Ian Wace’s Marshall Wace LLP, Benjamin A. Smith’s Laurion Capital Management, and Mika Toikka’s AlphaCrest Capital Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Cathay General Bancorp (NASDAQ:CATY) but similarly valued. We will take a look at Independent Bank Corp (NASDAQ:INDB), Kura Oncology, Inc. (NASDAQ:KURA), AlloVir, Inc. (NASDAQ:ALVR), Six Flags Entertainment Corp (NYSE:SIX), AMTD International Inc. (NYSE:HKIB), MaxLinear, Inc. (NYSE:MXL), and Hub Group Inc (NASDAQ:HUBG). This group of stocks’ market caps are closest to CATY’s market cap.

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 $219 million. That figure was $47 million in CATY’s case. Six Flags Entertainment Corp (NYSE:SIX) is the most popular stock in this table. On the other hand AMTD International Inc. (NYSE:HKIB) is the least popular one with only 1 bullish hedge fund positions. Cathay General Bancorp (NASDAQ:CATY) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CATY is 60.6. 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. 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 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on CATY as the stock returned 41.4% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.