Was The Smart Money Right About Canadian Pacific Railway Limited (CP)?

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Canadian Pacific Railway Limited (NYSE:CP).

Canadian Pacific Railway Limited (NYSE:CP) shareholders have witnessed an increase in enthusiasm from smart money recently. Canadian Pacific Railway Limited (NYSE:CP) was in 36 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 40. Our calculations also showed that CP isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

John Armitage of Egerton Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. 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. 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 to get excerpts of these letters in your inbox. With all of this in mind we’re going to check out the recent hedge fund action surrounding Canadian Pacific Railway Limited (NYSE:CP).

How are hedge funds trading Canadian Pacific Railway Limited (NYSE:CP)?

At the end of June, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from one quarter earlier. By comparison, 30 hedge funds held shares or bullish call options in CP a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Egerton Capital Limited, managed by John Armitage, holds the biggest position in Canadian Pacific Railway Limited (NYSE:CP). Egerton Capital Limited has a $798.9 million position in the stock, comprising 5.9% of its 13F portfolio. The second most bullish fund manager is Brandon Haley of Holocene Advisors, with a $127.3 million position; 1.1% of its 13F portfolio is allocated to the stock. Remaining professional money managers that hold long positions include Ken Griffin’s Citadel Investment Group, Aaron Cowen’s Suvretta Capital Management and Greg Poole’s Echo Street Capital Management. In terms of the portfolio weights assigned to each position SAYA Management allocated the biggest weight to Canadian Pacific Railway Limited (NYSE:CP), around 11.48% of its 13F portfolio. Heronetta Management is also relatively very bullish on the stock, dishing out 6.52 percent of its 13F equity portfolio to CP.

Consequently, key hedge funds were leading the bulls’ herd. Suvretta Capital Management, managed by Aaron Cowen, created the most valuable position in Canadian Pacific Railway Limited (NYSE:CP). Suvretta Capital Management had $107.9 million invested in the company at the end of the quarter. Alexander Mitchell’s Scopus Asset Management also made a $26.9 million investment in the stock during the quarter. The following funds were also among the new CP investors: Dmitry Balyasny’s Balyasny Asset Management, Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, and Robert Vincent McHugh’s Jade Capital Advisors.

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. We will take a look at Eni SpA (NYSE:E), Kinder Morgan Inc (NYSE:KMI), Sempra Energy (NYSE:SRE), Snap Inc. (NYSE:SNAP), The Bank of New York Mellon Corporation (NYSE:BK), Bank of Montreal (NYSE:BMO), and Constellation Brands, Inc. (NYSE:STZ). This group of stocks’ market values resemble CP’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.6 hedge funds with bullish positions and the average amount invested in these stocks was $1366 million. That figure was $1636 million in CP’s case. Constellation Brands, Inc. (NYSE:STZ) is the most popular stock in this table. On the other hand Eni SpA (NYSE:E) is the least popular one with only 8 bullish hedge fund positions. Canadian Pacific Railway Limited (NYSE:CP) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CP is 67.1. 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. A small number of hedge funds were also right about betting on CP as the stock returned 17.4% since the end of the second quarter (through 10/30) and outperformed the market by an even larger margin.

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