Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We 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. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. At Insider Monkey, we pore over the filings of nearly 835 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not CIT Group Inc. (NYSE:CIT) makes for a good investment right now.
CIT Group Inc. (NYSE:CIT) was in 35 hedge funds’ portfolios at the end of the fourth quarter of 2019. CIT investors should pay attention to an increase in hedge fund interest in recent months. There were 29 hedge funds in our database with CIT positions at the end of the previous quarter. Our calculations also showed that CIT isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
In the financial world there are a multitude of formulas stock market investors employ to assess their holdings. A duo of the less known formulas are hedge fund and insider trading interest. Our researchers have shown that, historically, those who follow the top picks of the top hedge fund managers can trounce the broader indices by a healthy amount (see the details here).
Jeffrey Altman of Owl Creek Asset Management
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a glance at the new hedge fund action encompassing CIT Group Inc. (NYSE:CIT).
How have hedgies been trading CIT Group Inc. (NYSE:CIT)?
At the end of the fourth quarter, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of 21% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CIT over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
Among these funds, First Pacific Advisors LLC held the most valuable stake in CIT Group Inc. (NYSE:CIT), which was worth $390.7 million at the end of the third quarter. On the second spot was Lakewood Capital Management which amassed $146.7 million worth of shares. Arrowstreet Capital, Owl Creek Asset Management, and AQR Capital Management 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 Kettle Hill Capital Management allocated the biggest weight to CIT Group Inc. (NYSE:CIT), around 7.03% of its 13F portfolio. Lakewood Capital Management is also relatively very bullish on the stock, earmarking 5.18 percent of its 13F equity portfolio to CIT.
As aggregate interest increased, specific money managers have jumped into CIT Group Inc. (NYSE:CIT) headfirst. Kettle Hill Capital Management, managed by Andrew Kurita, assembled the most valuable position in CIT Group Inc. (NYSE:CIT). Kettle Hill Capital Management had $27.9 million invested in the company at the end of the quarter. Michael Kharitonov and Jon David McAuliffe’s Voleon Capital also initiated a $1.4 million position during the quarter. The other funds with brand new CIT positions are Qing Li’s Sciencast Management, Benjamin A. Smith’s Laurion Capital Management, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.
Let’s check out hedge fund activity in other stocks similar to CIT Group Inc. (NYSE:CIT). These stocks are KBR, Inc. (NYSE:KBR), Sabra Health Care REIT Inc (NASDAQ:SBRA), Philippine Long Distance Telephone (NYSE:PHI), and Ternium S.A. (NYSE:TX). This group of stocks’ market values resemble CIT’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KBR | 29 | 515428 | -2 |
| SBRA | 27 | 307485 | 15 |
| PHI | 7 | 75067 | 2 |
| TX | 11 | 124170 | 1 |
| Average | 18.5 | 255538 | 4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $256 million. That figure was $956 million in CIT’s case. KBR, Inc. (NYSE:KBR) is the most popular stock in this table. On the other hand Philippine Long Distance Telephone (NYSE:PHI) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks CIT Group Inc. (NYSE:CIT) 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 17.4% in 2020 through March 25th and still beat the market by 5.5 percentage points. Unfortunately CIT wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CIT were disappointed as the stock returned -58.5% during the first two and a half months of 2020 (through March 25th) 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.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
