Should You Avoid Cognizant Technology Solutions Corp (CTSH)?

Should you avoid Cognizant Technology Solutions Corp (NASDAQ:CTSH)?

To many market players, hedge funds are assumed to be overrated, old investment tools of a forgotten age. Although there are over 8,000 hedge funds with their doors open in present day, Insider Monkey focuses on the leaders of this group, about 525 funds. Analysts calculate that this group oversees the majority of the hedge fund industry’s total assets, and by tracking their highest quality equity investments, we’ve formulated a number of investment strategies that have historically outperformed the market. Our small-cap hedge fund strategy outstripped the S&P 500 index by 18 percentage points annually for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have outperformed the S&P 500 index by 33 percentage points in 11 months (explore the details and some picks here).

Just as crucial, optimistic insider trading activity is another way to analyze the marketplace. Just as you’d expect, there are a number of incentives for an insider to downsize shares of his or her company, but just one, very simple reason why they would buy. Many empirical studies have demonstrated the market-beating potential of this strategy if piggybackers know what to do (learn more here).

What’s more, we’re going to examine the recent info surrounding Cognizant Technology Solutions Corp (NASDAQ:CTSH).

What have hedge funds been doing with Cognizant Technology Solutions Corp (NASDAQ:CTSH)?

At the end of the second quarter, a total of 40 of the hedge funds we track held long positions in this stock, a change of -2% from one quarter earlier. With the smart money’s capital changing hands, there exists a few key hedge fund managers who were boosting their holdings meaningfully.

Out of the hedge funds we follow, Stephen Mandel’s Lone Pine Capital had the largest position in Cognizant Technology Solutions Corp (NASDAQ:CTSH), worth close to $829.3 million, accounting for 4% of its total 13F portfolio. Coming in second is J Kevin Kenny Jr of Emerging Sovereign Group, with a $181.5 million position; 7.6% of its 13F portfolio is allocated to the company. Remaining hedgies that hold long positions include Lee Ainslie’s Maverick Capital, Jeffrey Tannenbaum’s Fir Tree and Ricky Sandler’s Eminence Capital.

Judging by the fact that Cognizant Technology Solutions Corp (NASDAQ:CTSH) has experienced declining interest from upper-tier hedge fund managers, logic holds that there lies a certain “tier” of money managers that slashed their entire stakes last quarter. Intriguingly, James Crichton and Adam Weiss’s Scout Capital Management dumped the largest position of all the hedgies we key on, worth an estimated $122.6 million in stock. David Stemerman’s fund, Conatus Capital Management, also sold off its stock, about $70.5 million worth. These transactions are important to note, as total hedge fund interest was cut by 1 funds last quarter.

What do corporate executives and insiders think about Cognizant Technology Solutions Corp (NASDAQ:CTSH)?

Insider buying made by high-level executives is most useful when the company we’re looking at has experienced transactions within the past six months. Over the last 180-day time period, Cognizant Technology Solutions Corp (NASDAQ:CTSH) has seen 1 unique insiders buying, and 4 insider sales (see the details of insider trades here).

We’ll go over the relationship between both of these indicators in other stocks similar to Cognizant Technology Solutions Corp (NASDAQ:CTSH). These stocks are NetSuite Inc (NYSE:N), Amdocs Limited (NYSE:DOX), Iron Mountain Incorporated (NYSE:IRM), Citrix Systems, Inc. (NASDAQ:CTXS), and Automatic Data Processing (NASDAQ:ADP). All of these stocks are in the business software & services industry and their market caps resemble CTSH’s market cap.

Using the returns shown by our studies, regular investors must always watch hedge fund and insider trading activity, and Cognizant Technology Solutions Corp (NASDAQ:CTSH) applies perfectly to this mantra.

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