Should I Avoid Cheetah Mobile Inc (CMCM)?

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Cheetah Mobile Inc (NYSE:CMCM).

Cheetah Mobile Inc (NYSE:CMCM) was in 4 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 8. CMCM has seen a decrease in hedge fund interest of late. There were 5 hedge funds in our database with CMCM holdings at the end of June. Our calculations also showed that CMCM 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.

To the average investor there are a lot of gauges stock market investors can use to analyze stocks. Two of the less utilized gauges are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the top picks of the top hedge fund managers can outpace their index-focused peers by a superb amount (see the details here).

David E. Shaw of D.E. Shaw

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 10 most profitable companies in the world 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. Now we’re going to analyze the key hedge fund action surrounding Cheetah Mobile Inc (NYSE:CMCM).

Hedge fund activity in Cheetah Mobile Inc (NYSE:CMCM)

Heading into the fourth quarter of 2020, a total of 4 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CMCM over the last 21 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies,  holds the largest position in Cheetah Mobile Inc (NYSE:CMCM). Renaissance Technologies has a $1.8 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Coming in second is Citadel Investment Group, led by Ken Griffin, holding a $1.8 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other members of the smart money that are bullish comprise D. E. Shaw’s D E Shaw, Bruce Kovner’s Caxton Associates LP and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Caxton Associates LP allocated the biggest weight to Cheetah Mobile Inc (NYSE:CMCM), around 0.02% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, earmarking 0.0018 percent of its 13F equity portfolio to CMCM.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Arrowstreet Capital. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified CMCM as a viable investment and initiated a position in the stock.

Let’s now review hedge fund activity in other stocks similar to Cheetah Mobile Inc (NYSE:CMCM). We will take a look at MidWestOne Financial Group, Inc. (NASDAQ:MOFG), SCVX Corp. (NYSE:SCVX), Solaris Oilfield Infrastructure, Inc. (NYSE:SOI), Cassava Sciences, Inc. (NASDAQ:SAVA), DXP Enterprises Inc (NASDAQ:DXPE), Funko, Inc. (NASDAQ:FNKO), and Peapack-Gladstone Financial Corp (NASDAQ:PGC). This group of stocks’ market caps match CMCM’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.4 hedge funds with bullish positions and the average amount invested in these stocks was $28 million. That figure was $4 million in CMCM’s case. SCVX Corp. (NYSE:SCVX) is the most popular stock in this table. On the other hand MidWestOne Financial Group, Inc. (NASDAQ:MOFG) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Cheetah Mobile Inc (NYSE:CMCM) is even less popular than MOFG. Our overall hedge fund sentiment score for CMCM is 19. 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 CMCM. Our calculations showed that the top 20 most popular hedge fund stocks 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 November 27th but managed to beat the market again by 16.1 percentage points. Unfortunately CMCM wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); CMCM investors were disappointed as the stock returned -3.4% since the end of the third quarter (through 11/27) 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 so far in 2020.

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