Were Hedge Funds Right About Cummins (CMI)?

The Insider Monkey team has completed processing the quarterly 13F filings for the December quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Cummins Inc. (NYSE:CMI).

Is Cummins Inc. (NYSE:CMI) a marvelous stock to buy now? Hedge funds were becoming less hopeful. The number of long hedge fund bets fell by 4 recently. Cummins Inc. (NYSE:CMI) was in 45 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 49. Our calculations also showed that CMI isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Noam Gottesman of GLG Partners

At Insider Monkey we leave no stone unturned when looking for 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 best hydrogen fuel cell 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. 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 homepage. Now let’s check out the fresh hedge fund action regarding Cummins Inc. (NYSE:CMI).

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

At fourth quarter’s end, a total of 45 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the third quarter of 2020. On the other hand, there were a total of 39 hedge funds with a bullish position in CMI a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, AQR Capital Management, managed by Cliff Asness, holds the most valuable position in Cummins Inc. (NYSE:CMI). AQR Capital Management has a $222 million position in the stock, comprising 0.4% of its 13F portfolio. Sitting at the No. 2 spot is Millennium Management, managed by Israel Englander, which holds a $113 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining professional money managers with similar optimism encompass Noam Gottesman’s GLG Partners, Stanley Druckenmiller’s Duquesne Capital and Richard Driehaus’s Driehaus Capital. In terms of the portfolio weights assigned to each position Socorro Asset Management allocated the biggest weight to Cummins Inc. (NYSE:CMI), around 3.85% of its 13F portfolio. Impala Asset Management is also relatively very bullish on the stock, dishing out 2.2 percent of its 13F equity portfolio to CMI.

Judging by the fact that Cummins Inc. (NYSE:CMI) has faced bearish sentiment from hedge fund managers, we can see that there lies a certain “tier” of hedge funds that slashed their entire stakes heading into Q1. Interestingly, Anand Parekh’s Alyeska Investment Group cut the largest stake of the 750 funds monitored by Insider Monkey, totaling close to $41.1 million in stock, and Louis Bacon’s Moore Global Investments was right behind this move, as the fund cut about $25.3 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 4 funds heading into Q1.

Let’s go over hedge fund activity in other stocks similar to Cummins Inc. (NYSE:CMI). We will take a look at Paychex, Inc. (NASDAQ:PAYX), STMicroelectronics N.V. (NYSE:STM), CRH PLC (NYSE:CRH), The Allstate Corporation (NYSE:ALL), V.F. Corporation (NYSE:VFC), Okta, Inc. (NASDAQ:OKTA), and Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA). This group of stocks’ market caps are similar to CMI’s market cap.

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As you can see these stocks had an average of 27.9 hedge funds with bullish positions and the average amount invested in these stocks was $751 million. That figure was $829 million in CMI’s case. Okta, Inc. (NASDAQ:OKTA) is the most popular stock in this table. On the other hand CRH PLC (NYSE:CRH) is the least popular one with only 7 bullish hedge fund positions. Cummins Inc. (NYSE:CMI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CMI is 63.7. 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 positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and beat the market again by 1.6 percentage points. Unfortunately CMI wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CMI were disappointed as the stock returned 11.6% since the end of December (through 4/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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

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