Were Hedge Funds Right About Ditching Conduent Incorporated (CNDT)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Conduent Incorporated (NYSE:CNDT) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is Conduent Incorporated (NYSE:CNDT) the right pick for your portfolio? Prominent investors were becoming less hopeful. The number of long hedge fund bets were trimmed by 8 in recent months. Our calculations also showed that CNDT isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). CNDT was in 18 hedge funds’ portfolios at the end of the first quarter of 2020. There were 26 hedge funds in our database with CNDT holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

At the moment there are dozens of formulas stock market investors put to use to assess publicly traded companies. Two of the most innovative formulas are hedge fund and insider trading interest. We have shown that, historically, those who follow the top picks of the top hedge fund managers can outclass the market by a very impressive amount (see the details here).

Paul Marshall of Marshall Wace

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind let’s take a gander at the recent hedge fund action encompassing Conduent Incorporated (NYSE:CNDT).

What does smart money think about Conduent Incorporated (NYSE:CNDT)?

Heading into the second quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -31% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CNDT over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Icahn Capital LP held the most valuable stake in Conduent Incorporated (NYSE:CNDT), which was worth $93.5 million at the end of the third quarter. On the second spot was Iridian Asset Management which amassed $18.5 million worth of shares. Paradice Investment Management, D E Shaw, and Renaissance Technologies 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 Paradice Investment Management allocated the biggest weight to Conduent Incorporated (NYSE:CNDT), around 1.88% of its 13F portfolio. Clearline Capital is also relatively very bullish on the stock, setting aside 1.18 percent of its 13F equity portfolio to CNDT.

Due to the fact that Conduent Incorporated (NYSE:CNDT) has witnessed falling interest from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of funds that decided to sell off their positions entirely by the end of the first quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the biggest investment of the 750 funds monitored by Insider Monkey, totaling an estimated $4.4 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund dropped about $1.5 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 8 funds by the end of the first quarter.

Let’s check out hedge fund activity in other stocks similar to Conduent Incorporated (NYSE:CNDT). These stocks are trivago N.V. (NASDAQ:TRVG), RAPT Therapeutics, Inc. (NASDAQ:RAPT), Knoll Inc (NYSE:KNL), and Cohu, Inc. (NASDAQ:COHU). This group of stocks’ market valuations are closest to CNDT’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 7.75 hedge funds with bullish positions and the average amount invested in these stocks was $27 million. That figure was $167 million in CNDT’s case. Knoll Inc (NYSE:KNL) is the most popular stock in this table. On the other hand RAPT Therapeutics, Inc. (NASDAQ:RAPT) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Conduent Incorporated (NYSE:CNDT) is more popular among hedge funds. 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 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. Unfortunately CNDT wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CNDT were disappointed as the stock returned -21.6% since the end of the first quarter 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 most of these stocks already outperformed the market in 2020.

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