Should I Avoid Cognizant Technology Solutions Corp (CTSH)?

While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March, 2020 and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 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 Cognizant Technology Solutions Corp (NASDAQ:CTSH).

Cognizant Technology Solutions Corp (NASDAQ:CTSH) investors should be aware of a decrease in hedge fund sentiment in recent months. Cognizant Technology Solutions Corp (NASDAQ:CTSH) was in 29 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 55. Our calculations also showed that CTSH isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind we’re going to take a glance at the key hedge fund action surrounding Cognizant Technology Solutions Corp (NASDAQ:CTSH).

Richard S. Pzena of Pzena Investment Management

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

At third quarter’s end, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of -29% from the second quarter of 2021. The graph below displays the number of hedge funds with bullish position in CTSH over the last 25 quarters. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Richard S. Pzena’s Pzena Investment Management has the largest position in Cognizant Technology Solutions Corp (NASDAQ:CTSH), worth close to $1.0472 billion, amounting to 4.1% of its total 13F portfolio. The second most bullish fund manager is Donald Yacktman of Yacktman Asset Management, with a $431.6 million position; the fund has 4.2% of its 13F portfolio invested in the stock. Other peers that hold long positions consist of Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, D. E. Shaw’s D E Shaw and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Yacktman Asset Management allocated the biggest weight to Cognizant Technology Solutions Corp (NASDAQ:CTSH), around 4.15% of its 13F portfolio. Pzena Investment Management is also relatively very bullish on the stock, dishing out 4.15 percent of its 13F equity portfolio to CTSH.

Due to the fact that Cognizant Technology Solutions Corp (NASDAQ:CTSH) has faced declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there exists a select few funds who sold off their positions entirely in the third quarter. Interestingly, Matthew Stadelman’s Diamond Hill Capital dropped the biggest position of all the hedgies tracked by Insider Monkey, comprising an estimated $460.3 million in stock, and Greg Eisner’s Engineers Gate Manager was right behind this move, as the fund sold off about $9.1 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 12 funds in the third quarter.

Let’s go over hedge fund activity in other stocks similar to Cognizant Technology Solutions Corp (NASDAQ:CTSH). These stocks are Ross Stores, Inc. (NASDAQ:ROST), ResMed Inc. (NYSE:RMD), Republic Services, Inc. (NYSE:RSG), SVB Financial Group (NASDAQ:SIVB), The Travelers Companies Inc (NYSE:TRV), Kinder Morgan Inc (NYSE:KMI), and The Allstate Corporation (NYSE:ALL). This group of stocks’ market caps are closest to CTSH’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.3 hedge funds with bullish positions and the average amount invested in these stocks was $902 million. That figure was $2337 million in CTSH’s case. SVB Financial Group (NASDAQ:SIVB) is the most popular stock in this table. On the other hand The Allstate Corporation (NYSE:ALL) is the least popular one with only 27 bullish hedge fund positions. Cognizant Technology Solutions Corp (NASDAQ:CTSH) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CTSH is 14.4. 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. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.6% in 2021 through November 30th and surpassed the market again by 5.6 percentage points. Unfortunately CTSH wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); CTSH investors were disappointed as the stock returned 5.4% since the end of September (through 11/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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