Hedge Funds Have Never Been More Bullish On Cabot Microelectronics Corporation (CCMP)

Debasis Saha

Sat, Mar 28, 2020, 7:34 PM 6 min read

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. Keeping this in mind, let's take a look at whether Cabot Microelectronics Corporation (NASDAQ:CCMP) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Cabot Microelectronics Corporation (NASDAQ:CCMP) was in 24 hedge funds' portfolios at the end of December. CCMP investors should be aware of an increase in hedge fund interest of late. There were 17 hedge funds in our database with CCMP positions at the end of the previous quarter. Our calculations also showed that CCMP isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

Today there are tons of metrics stock traders employ to assess their stock investments. A couple of the most under-the-radar metrics are hedge fund and insider trading activity. We have shown that, historically, those who follow the best picks of the top fund managers can outclass the S&P 500 by a solid margin (see the details here).

[caption id="attachment_255014" align="aligncenter" width="400"]

Clint Carlson of Carlson Capital[/caption]

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind let's take a look at the new hedge fund action regarding Cabot Microelectronics Corporation (NASDAQ:CCMP).

How are hedge funds trading Cabot Microelectronics Corporation (NASDAQ:CCMP)?

At the end of the fourth quarter, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 41% from the previous quarter. By comparison, 20 hedge funds held shares or bullish call options in CCMP 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.

The largest stake in Cabot Microelectronics Corporation (NASDAQ:CCMP) was held by Royce & Associates, which reported holding $93.3 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $68.9 million position. Other investors bullish on the company included Adage Capital Management, Select Equity Group, and Carlson Capital. In terms of the portfolio weights assigned to each position MIK Capital allocated the biggest weight to Cabot Microelectronics Corporation (NASDAQ:CCMP), around 3.69% of its 13F portfolio. Appian Way Asset Management is also relatively very bullish on the stock, dishing out 2.11 percent of its 13F equity portfolio to CCMP.

As industrywide interest jumped, key money managers were breaking ground themselves. Select Equity Group, managed by Robert Joseph Caruso, assembled the biggest position in Cabot Microelectronics Corporation (NASDAQ:CCMP). Select Equity Group had $46.1 million invested in the company at the end of the quarter. Kamyar Khajavi's MIK Capital also initiated a $10.6 million position during the quarter. The other funds with brand new CCMP positions are Andrew Byington's Appian Way Asset Management, Ravee Mehta's Nishkama Capital, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital.

Let's also examine hedge fund activity in other stocks similar to Cabot Microelectronics Corporation (NASDAQ:CCMP). These stocks are Stag Industrial Inc (NYSE:STAG), Lazard Ltd (NYSE:LAZ), ALLETE Inc (NYSE:ALE), and Affiliated Managers Group, Inc. (NYSE:AMG). This group of stocks' market values resemble CCMP's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position STAG,18,126164,-6 LAZ,14,701694,-1 ALE,25,252011,3 AMG,38,548063,15 Average,23.75,406983,2.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $407 million. That figure was $383 million in CCMP's case. Affiliated Managers Group, Inc. (NYSE:AMG) is the most popular stock in this table. On the other hand Lazard Ltd (NYSE:LAZ) is the least popular one with only 14 bullish hedge fund positions. Cabot Microelectronics Corporation (NASDAQ:CCMP) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately CCMP wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CCMP were disappointed as the stock returned -28.6% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.