Were Expert Investors Right About Canadian Pacific Railway Limited (CP)?

Stocks, especially the once high flying technology stocks, had a lousy start to the new year. QQQ lost 9% of its value in January. We aren’t certain about the bubbly technology stocks that trade for ridiculously high multiples of their revenues, but we believe top hedge fund stocks will deliver positive returns for the rest of the year. In this article, we will take a closer look at hedge fund sentiment towards Canadian Pacific Railway Limited (NYSE:CP) at the end of the third quarter and determine whether the smart money was really smart about this stock.

Canadian Pacific Railway Limited (NYSE:CP) was in 38 hedge funds’ portfolios at the end of September. The all time high for this statistic is 40. CP has experienced an increase in support from the world’s most elite money managers recently. There were 25 hedge funds in our database with CP positions at the end of the second quarter. Our calculations also showed that CP 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. Keeping this in mind let’s take a peek at the new hedge fund action surrounding Canadian Pacific Railway Limited (NYSE:CP).

Chris Hohn of TCI Fund Management

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

At third quarter’s end, a total of 38 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 52% from the previous quarter. On the other hand, there were a total of 32 hedge funds with a bullish position in CP a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, TCI Fund Management, managed by Chris Hohn, holds the most valuable position in Canadian Pacific Railway Limited (NYSE:CP). TCI Fund Management has a $3.6409 billion position in the stock, comprising 8.7% of its 13F portfolio. The second largest stake is held by John Armitage of Egerton Capital Limited, with a $1.871 billion position; the fund has 8.9% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish comprise Andreas Halvorsen’s Viking Global, John Overdeck and David Siegel’s Two Sigma Advisors and Greg Poole’s Echo Street Capital Management. In terms of the portfolio weights assigned to each position JNE Partners allocated the biggest weight to Canadian Pacific Railway Limited (NYSE:CP), around 11.24% of its 13F portfolio. Egerton Capital Limited is also relatively very bullish on the stock, setting aside 8.89 percent of its 13F equity portfolio to CP.

As aggregate interest increased, some big names have jumped into Canadian Pacific Railway Limited (NYSE:CP) headfirst. Viking Global, managed by Andreas Halvorsen, assembled the largest position in Canadian Pacific Railway Limited (NYSE:CP). Viking Global had $224.3 million invested in the company at the end of the quarter. Ben Jacobs’s Anomaly Capital Management also initiated a $73.3 million position during the quarter. The other funds with new positions in the stock are Stephen J. Errico’s Locust Wood Capital Advisers, Jonathan Esfandi’s JNE Partners, and Benjamin A. Smith’s Laurion Capital Management.

Let’s go over 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 Newmont Corporation (NYSE:NEM), Canadian Natural Resources Limited (NYSE:CNQ), National Grid plc (NYSE:NGG), Spotify Technology S.A. (NYSE:SPOT), Dow Inc. (NYSE:DOW), Simon Property Group, Inc (NYSE:SPG), and Microchip Technology Incorporated (NASDAQ:MCHP). All of these stocks’ market caps are similar to CP’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.6 hedge funds with bullish positions and the average amount invested in these stocks was $1097 million. That figure was $6639 million in CP’s case. Newmont Corporation (NYSE:NEM) is the most popular stock in this table. On the other hand National Grid plc (NYSE:NGG) is the least popular one with only 5 bullish hedge fund positions. Canadian Pacific Railway Limited (NYSE:CP) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CP is 76.9. 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 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 29.6% in 2021 and still beat the market by 3.6 percentage points. Hedge funds were also right about betting on CP as the stock returned 10% since the end of Q3 (through 1/31) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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