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Do Hedge Funds Love Cognizant Technology Solutions Corp (CTSH)?

Debasis Saha

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 821 13F filings submitted by hedge funds and prominent investors. These filings show these funds' portfolio positions as of March 31st, 2020. What do these smart investors think about Cognizant Technology Solutions Corp (NASDAQ:CTSH)?

Is Cognizant Technology Solutions Corp (NASDAQ:CTSH) the right investment to pursue these days? The best stock pickers are getting less bullish. The number of bullish hedge fund positions dropped by 5 recently. Our calculations also showed that CTSH 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). CTSH was in 38 hedge funds' portfolios at the end of March. There were 43 hedge funds in our database with CTSH positions at the end of the previous quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 51 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_189672" align="aligncenter" width="400"] David Blood of Generation Investment Management[/caption]

David Blood

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let's take a look at the key hedge fund action regarding Cognizant Technology Solutions Corp (NASDAQ:CTSH).

What does smart money think about Cognizant Technology Solutions Corp (NASDAQ:CTSH)?

At Q1's end, a total of 38 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -12% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in CTSH 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.

Is CTSH A Good Stock To Buy?

The largest stake in Cognizant Technology Solutions Corp (NASDAQ:CTSH) was held by Generation Investment Management, which reported holding $744 million worth of stock at the end of September. It was followed by Pzena Investment Management with a $412.3 million position. Other investors bullish on the company included Yacktman Asset Management, Citadel Investment Group, and Diamond Hill Capital. In terms of the portfolio weights assigned to each position Broad Peak Investment Holdings allocated the biggest weight to Cognizant Technology Solutions Corp (NASDAQ:CTSH), around 11.09% of its 13F portfolio. Generation Investment Management is also relatively very bullish on the stock, dishing out 5.28 percent of its 13F equity portfolio to CTSH.

Due to the fact that Cognizant Technology Solutions Corp (NASDAQ:CTSH) has faced a decline in interest from hedge fund managers, it's safe to say that there were a few fund managers that slashed their full holdings last quarter. It's worth mentioning that D. E. Shaw's D E Shaw sold off the biggest investment of the "upper crust" of funds tracked by Insider Monkey, comprising an estimated $20 million in stock, and Matthew Tewksbury's Stevens Capital Management was right behind this move, as the fund cut about $3.3 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 5 funds last quarter.

Let's check out hedge fund activity in other stocks similar to Cognizant Technology Solutions Corp (NASDAQ:CTSH). These stocks are Travelers Companies Inc (NYSE:TRV), DuPont de Nemours Inc (NYSE:DD), Hormel Foods Corporation (NYSE:HRL), and HP Inc. (NYSE:HPQ). This group of stocks' market valuations match CTSH's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TRV,29,481539,-10 DD,54,2411525,-14 HRL,28,276267,5 HPQ,43,2180945,-6 Average,38.5,1337569,-6.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.5 hedge funds with bullish positions and the average amount invested in these stocks was $1338 million. That figure was $2225 million in CTSH's case. DuPont de Nemours Inc (NYSE:DD) is the most popular stock in this table. On the other hand Hormel Foods Corporation (NYSE:HRL) is the least popular one with only 28 bullish hedge fund positions. Cognizant Technology Solutions Corp (NASDAQ:CTSH) is not the least popular stock in this group but hedge fund interest is still below average. 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 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 8.3% in 2020 through the end of May and surpassed the market by 13.2 percentage points. Unfortunately CTSH wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); CTSH investors were disappointed as the stock returned 14.5% during the second 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.

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

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