Were Hedge Funds Right About Cummins Inc. (CMI)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the third quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 6 years and analyze what the smart money thinks of Cummins Inc. (NYSE:CMI) based on that data and determine whether they were really smart about the stock.

Is Cummins Inc. (NYSE:CMI) the right pick for your portfolio? Money managers were getting less bullish. The number of long hedge fund positions retreated by 15 recently. Cummins Inc. (NYSE:CMI) was in 30 hedge funds’ portfolios at the end of the third quarter of 2021. 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 Q3 rankings). There were 45 hedge funds in our database with CMI holdings at the end of June.

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 glance at the latest hedge fund action encompassing Cummins Inc. (NYSE:CMI).

Noam Gottesman of GLG Partners

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

At third quarter’s end, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of -33% from one quarter earlier. By comparison, 49 hedge funds held shares or bullish call options in CMI 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.

More specifically, AQR Capital Management was the largest shareholder of Cummins Inc. (NYSE:CMI), with a stake worth $249.1 million reported as of the end of September. Trailing AQR Capital Management was GLG Partners, which amassed a stake valued at $237.9 million. Millennium Management, D E Shaw, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Socorro Asset Management allocated the biggest weight to Cummins Inc. (NYSE:CMI), around 4.4% of its 13F portfolio. Beech Hill Partners is also relatively very bullish on the stock, designating 1.05 percent of its 13F equity portfolio to CMI.

Because Cummins Inc. (NYSE:CMI) has experienced a decline in interest from hedge fund managers, logic holds that there lies a certain “tier” of fund managers that slashed their entire stakes last quarter. Intriguingly, Stanley Druckenmiller’s Duquesne Capital dumped the largest investment of the 750 funds followed by Insider Monkey, totaling about $79.2 million in stock, and Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital was right behind this move, as the fund sold off about $34.4 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 15 funds last quarter.

Let’s also examine hedge fund activity in other stocks similar to Cummins Inc. (NYSE:CMI). These stocks are Barrick Gold Corporation (NYSE:GOLD), Rocket Companies, Inc. (NYSE:RKT), Mettler-Toledo International Inc. (NYSE:MTD), HubSpot Inc (NYSE:HUBS), HP Inc. (NYSE:HPQ), The Williams Companies, Inc. (NYSE:WMB), and West Pharmaceutical Services Inc. (NYSE:WST). This group of stocks’ market valuations resemble CMI’s market valuation.

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As you can see these stocks had an average of 34.3 hedge funds with bullish positions and the average amount invested in these stocks was $1070 million. That figure was $830 million in CMI’s case. HubSpot Inc (NYSE:HUBS) is the most popular stock in this table. On the other hand Rocket Companies, Inc. (NYSE:RKT) is the least popular one with only 17 bullish hedge fund positions. Cummins Inc. (NYSE:CMI) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CMI is 29.3. 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 29.6% in 2021 and surpassed the market again by 3.6 percentage points. Unfortunately, CMI wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); CMI investors were disappointed as the stock returned -1% since the end of September (through 1/31) 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 all of these stocks already outperformed the market since 2019.

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