Hedge Funds Never Been Less Bullish On PC Connection, Inc. (CNXN)

In this article we will take a look at whether hedge funds think PC Connection, Inc. (NASDAQ:CNXN) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

PC Connection, Inc. (NASDAQ:CNXN) investors should be aware of a decrease in hedge fund interest in recent months. PC Connection, Inc. (NASDAQ:CNXN) was in 4 hedge funds’ portfolios at the end of September. The all time high for this statistics is 15. Our calculations also showed that CNXN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).

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

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Matthew Hulsizer PEAK6 Capital

Matthew Hulsizer of PEAK6 Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. 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. With all of this in mind we’re going to analyze the recent hedge fund action surrounding PC Connection, Inc. (NASDAQ:CNXN).

How have hedgies been trading PC Connection, Inc. (NASDAQ:CNXN)?

At third quarter’s end, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of -50% from one quarter earlier. On the other hand, there were a total of 11 hedge funds with a bullish position in CNXN a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Royce & Associates, managed by Chuck Royce, holds the largest position in PC Connection, Inc. (NASDAQ:CNXN). Royce & Associates has a $24.5 million position in the stock, comprising 0.3% of its 13F portfolio. On Royce & Associates’s heels is AQR Capital Management, led by Cliff Asness, holding a $2.8 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors that are bullish consist of Matthew Hulsizer’s PEAK6 Capital Management, David Harding’s Winton Capital Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to PC Connection, Inc. (NASDAQ:CNXN), around 0.26% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, earmarking 0.07 percent of its 13F equity portfolio to CNXN.

Since PC Connection, Inc. (NASDAQ:CNXN) has faced declining sentiment from the entirety of the hedge funds we track, logic holds that there is a sect of hedgies that slashed their full holdings heading into Q4. Interestingly, Jeff Osher’s No Street Capital said goodbye to the biggest position of all the hedgies tracked by Insider Monkey, valued at an estimated $3.2 million in stock, and Roger Ibbotson’s Zebra Capital Management was right behind this move, as the fund said goodbye to about $0.6 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 4 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as PC Connection, Inc. (NASDAQ:CNXN) but similarly valued. These stocks are Micro Focus Intl PLC (NYSE:MFGP), Sturm, Ruger & Company, Inc. (NYSE:RGR), Methode Electronics Inc. (NYSE:MEI), The Liberty Braves Group (NASDAQ:BATRA), Akero Therapeutics, Inc. (NASDAQ:AKRO), Gol Linhas Aereas Inteligentes SA (NYSE:GOL), and Central European Media Enterprises Ltd. (NASDAQ:CETV). This group of stocks’ market valuations are similar to CNXN’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MFGP 10 18863 -3
RGR 24 181471 -3
MEI 11 68216 -1
BATRA 12 51207 -1
AKRO 14 269570 1
GOL 10 21967 0
CETV 13 57180 1
Average 13.4 95496 -0.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.4 hedge funds with bullish positions and the average amount invested in these stocks was $95 million. That figure was $30 million in CNXN’s case. Sturm, Ruger & Company, Inc. (NYSE:RGR) is the most popular stock in this table. On the other hand Micro Focus Intl PLC (NYSE:MFGP) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks PC Connection, Inc. (NASDAQ:CNXN) is even less popular than MFGP. Our overall hedge fund sentiment score for CNXN is 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. Hedge funds clearly dropped the ball on CNXN as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 percentage points. These stocks gained 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. A small number of hedge funds were also right about betting on CNXN as the stock returned 13.4% since Q3 (through November 27th) and outperformed the market by an even larger margin.

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