We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Crane Co. (NYSE:CR).
Hedge fund interest in Crane Co. (NYSE:CR) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare CR to other stocks including Alliance Data Systems Corporation (NYSE:ADS), Kemper Corporation (NYSE:KMPR), and First Horizon National Corporation (NYSE:FHN) to get a better sense of its popularity.
To most shareholders, hedge funds are perceived as unimportant, old financial tools of the past. While there are greater than 8000 funds in operation at present, Our experts look at the aristocrats of this group, around 850 funds. These money managers have their hands on bulk of the hedge fund industry’s total asset base, and by paying attention to their finest equity investments, Insider Monkey has revealed many investment strategies that have historically defeated the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Mario Gabelli of GAMCO Investors
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. Keeping this in mind let’s take a glance at the key hedge fund action encompassing Crane Co. (NYSE:CR).
What have hedge funds been doing with Crane Co. (NYSE:CR)?
Heading into the first quarter of 2020, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. By comparison, 23 hedge funds held shares or bullish call options in CR a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
Among these funds, GAMCO Investors held the most valuable stake in Crane Co. (NYSE:CR), which was worth $167.9 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $79.3 million worth of shares. Citadel Investment Group, Two Sigma Advisors, and Millennium 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 GAMCO Investors allocated the biggest weight to Crane Co. (NYSE:CR), around 1.34% of its 13F portfolio. Brant Point Investment Management is also relatively very bullish on the stock, earmarking 0.44 percent of its 13F equity portfolio to CR.
Since Crane Co. (NYSE:CR) has witnessed a decline in interest from the smart money, logic holds that there is a sect of hedge funds who were dropping their full holdings last quarter. At the top of the heap, Paul Marshall and Ian Wace’s Marshall Wace LLP dropped the largest position of all the hedgies watched by Insider Monkey, valued at close to $12.1 million in stock. Steve Cohen’s fund, Point72 Asset Management, also dropped its stock, about $11.8 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Crane Co. (NYSE:CR) but similarly valued. These stocks are Alliance Data Systems Corporation (NYSE:ADS), Kemper Corporation (NYSE:KMPR), First Horizon National Corporation (NYSE:FHN), and GSX Techedu Inc. (NYSE:GSX). This group of stocks’ market values are similar to CR’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ADS | 45 | 1320134 | 6 |
| KMPR | 20 | 94921 | -1 |
| FHN | 27 | 246677 | -7 |
| GSX | 10 | 86015 | 7 |
| Average | 25.5 | 436937 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $437 million. That figure was $360 million in CR’s case. Alliance Data Systems Corporation (NYSE:ADS) is the most popular stock in this table. On the other hand GSX Techedu Inc. (NYSE:GSX) is the least popular one with only 10 bullish hedge fund positions. Crane Co. (NYSE:CR) 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 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 but beat the market by 5.5 percentage points. Unfortunately CR wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CR investors were disappointed as the stock returned -46.4% during the same time period 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.
