Is CP Stock A Buy or Sell?

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on December 31st. We at Insider Monkey have made an extensive database of more than 887 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Canadian Pacific Railway Limited (NYSE:CP) based on those filings.

Is CP stock a buy? The best stock pickers were becoming less hopeful. The number of bullish hedge fund positions decreased by 8 in recent months. Canadian Pacific Railway Limited (NYSE:CP) was in 24 hedge funds’ portfolios at the end of December. The all time high for this statistic is 40. Our calculations also showed that CP isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 124 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.

John Armitage of Egerton Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. 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 let’s analyze the key hedge fund action surrounding Canadian Pacific Railway Limited (NYSE:CP).

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

At the end of December, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of -25% from the third quarter of 2020. Below, you can check out the change in hedge fund sentiment towards CP over the last 22 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Egerton Capital Limited held the most valuable stake in Canadian Pacific Railway Limited (NYSE:CP), which was worth $1108.7 million at the end of the fourth quarter. On the second spot was Suvretta Capital Management which amassed $165.7 million worth of shares. Echo Street Capital Management, Locust Wood Capital Advisers, and Athanor Capital 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 Egerton Capital Limited allocated the biggest weight to Canadian Pacific Railway Limited (NYSE:CP), around 6.28% of its 13F portfolio. Heronetta Management is also relatively very bullish on the stock, designating 6.25 percent of its 13F equity portfolio to CP.

Judging by the fact that Canadian Pacific Railway Limited (NYSE:CP) has faced a decline in interest from hedge fund managers, we can see that there were a few hedgies that elected to cut their full holdings in the fourth quarter. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital cut the biggest investment of the “upper crust” of funds tracked by Insider Monkey, comprising close to $109.5 million in stock, and Zach Schreiber’s Point State Capital was right behind this move, as the fund cut about $40.4 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 8 funds in the fourth quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Canadian Pacific Railway Limited (NYSE:CP) but similarly valued. These stocks are Kimberly Clark Corporation (NYSE:KMB), Las Vegas Sands Corp. (NYSE:LVS), Lululemon Athletica inc. (NASDAQ:LULU), DoorDash, Inc. (NYSE:DASH), Capital One Financial Corp. (NYSE:COF), Roper Technologies Inc. (NYSE:ROP), and Keurig Dr Pepper Inc. (NASDAQ:KDP). This group of stocks’ market caps are closest to CP’s market cap.

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As you can see these stocks had an average of 44.7 hedge funds with bullish positions and the average amount invested in these stocks was $2117 million. That figure was $1540 million in CP’s case. Las Vegas Sands Corp. (NYSE:LVS) is the most popular stock in this table. On the other hand Keurig Dr Pepper Inc. (NASDAQ:KDP) is the least popular one with only 29 bullish hedge fund positions. Compared to these stocks Canadian Pacific Railway Limited (NYSE:CP) is even less popular than KDP. Our overall hedge fund sentiment score for CP is 15. 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. Hedge funds dodged a bullet by taking a bearish stance towards CP. Our calculations showed that the top 30 most popular hedge fund stocks returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th but managed to beat the market again by 0.9 percentage points. Unfortunately CP wasn’t nearly as popular as these 30 stocks (hedge fund sentiment was very bearish); CP investors were disappointed as the stock returned 5.6% since the end of the fourth quarter (through 4/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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