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

In this article we will check out the progression of hedge fund sentiment towards Cummins Inc. (NYSE:CMI) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is Cummins Inc. (NYSE:CMI) the right investment to pursue these days? Hedge funds were becoming hopeful. The number of long hedge fund bets advanced by 4 in recent months. Cummins Inc. (NYSE:CMI) was in 38 hedge funds’ portfolios at the end of June. The all time high for this statistics is 45. Our calculations also showed that CMI 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). There were 34 hedge funds in our database with CMI positions at the end of the first quarter.

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

If you’d ask most traders, hedge funds are assumed to be slow, old investment vehicles of yesteryear. While there are greater than 8000 funds with their doors open at the moment, We hone in on the elite of this group, around 850 funds. These hedge fund managers preside over the lion’s share of the smart money’s total capital, and by keeping track of their inimitable stock picks, Insider Monkey has formulated several investment strategies that have historically exceeded the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Ryan Tolkin, CIO of Schonfeld Strategic Advisors

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. Now we’re going to take a gander at the fresh hedge fund action regarding Cummins Inc. (NYSE:CMI).

What have hedge funds been doing with Cummins Inc. (NYSE:CMI)?

At the end of the second quarter, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of 12% from the previous quarter. On the other hand, there were a total of 45 hedge funds with a bullish position in CMI a year ago. So, let’s check out 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, Cliff Asness’s AQR Capital Management has the biggest position in Cummins Inc. (NYSE:CMI), worth close to $128.6 million, amounting to 0.2% of its total 13F portfolio. Sitting at the No. 2 spot is Laurion Capital Management, managed by Benjamin A. Smith, which holds a $57.4 million position; 0.6% of its 13F portfolio is allocated to the stock. Some other members of the smart money with similar optimism consist of Ken Griffin’s Citadel Investment Group, John Overdeck and David Siegel’s Two Sigma Advisors and Robert Bishop’s Impala Asset Management. In terms of the portfolio weights assigned to each position Impala Asset Management allocated the biggest weight to Cummins Inc. (NYSE:CMI), around 2.5% of its 13F portfolio. L2 Asset Management is also relatively very bullish on the stock, earmarking 1.64 percent of its 13F equity portfolio to CMI.

With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. Impala Asset Management, managed by Robert Bishop, assembled the most valuable position in Cummins Inc. (NYSE:CMI). Impala Asset Management had $21.9 million invested in the company at the end of the quarter. Alexander Mitchell’s Scopus Asset Management also initiated a $12.4 million position during the quarter. The other funds with new positions in the stock are Ken Griffin’s Citadel Investment Group, Renaissance Technologies, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Cummins Inc. (NYSE:CMI) but similarly valued. These stocks are Schlumberger Limited. (NYSE:SLB), Johnson Controls International plc (NYSE:JCI), Fresenius Medical Care AG & Co. KGaA (NYSE:FMS), Willis Towers Watson Public Limited Company (NASDAQ:WLTW), RingCentral Inc (NYSE:RNG), PPG Industries, Inc. (NYSE:PPG), and ANSYS, Inc. (NASDAQ:ANSS). This group of stocks’ market values resemble CMI’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 39.1 hedge funds with bullish positions and the average amount invested in these stocks was $1366 million. That figure was $359 million in CMI’s case. RingCentral Inc (NYSE:RNG) is the most popular stock in this table. On the other hand Fresenius Medical Care AG & Co. KGaA (NYSE:FMS) is the least popular one with only 6 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 62.9. 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 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 CMI as the stock returned 27.7% 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.