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Hedge Funds Never Been This Bullish On CDW Corporation (CDW)

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). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. 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 CDW Corporation (NASDAQ:CDW) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Is CDW Corporation (NASDAQ:CDW) undervalued? Money managers were taking an optimistic view. The number of long hedge fund positions rose by 4 lately. CDW Corporation (NASDAQ:CDW) was in 40 hedge funds’ portfolios at the end of June. The all time high for this statistics is 36. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that CDW 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 36 hedge funds in our database with CDW holdings at the end of March.

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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 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.

AQR CAPITAL MANAGEMENT

Cliff Asness of AQR Capital Management

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 precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Keeping this in mind let’s take a peek at the recent hedge fund action regarding CDW Corporation (NASDAQ:CDW).

How have hedgies been trading CDW Corporation (NASDAQ:CDW)?

Heading into the third quarter of 2020, a total of 40 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from the first quarter of 2020. By comparison, 29 hedge funds held shares or bullish call options in CDW a year ago. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Select Equity Group, managed by Robert Joseph Caruso, holds the biggest position in CDW Corporation (NASDAQ:CDW). Select Equity Group has a $685.5 million position in the stock, comprising 3.9% of its 13F portfolio. The second largest stake is held by AQR Capital Management, managed by Cliff Asness, which holds a $88.9 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish contain Bo Shan’s Gobi Capital, Peter Lewis’s LFL Advisers and Renaissance Technologies. In terms of the portfolio weights assigned to each position LFL Advisers allocated the biggest weight to CDW Corporation (NASDAQ:CDW), around 24.92% of its 13F portfolio. Makaira Partners is also relatively very bullish on the stock, earmarking 10.42 percent of its 13F equity portfolio to CDW.

Now, key hedge funds were breaking ground themselves. Samlyn Capital, managed by Robert Pohly, established the most outsized position in CDW Corporation (NASDAQ:CDW). Samlyn Capital had $45.1 million invested in the company at the end of the quarter. James Parsons’s Junto Capital Management also made a $7.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Anthony S. Daffer’s Provenire Capital, Greg Eisner’s Engineers Gate Manager, and Greg Poole’s Echo Street Capital Management.

Let’s now take a look at hedge fund activity in other stocks similar to CDW Corporation (NASDAQ:CDW). These stocks are TransUnion (NYSE:TRU), Northern Trust Corporation (NASDAQ:NTRS), Restaurant Brands International Inc (NYSE:QSR), Yandex NV (NASDAQ:YNDX), Peloton Interactive, Inc. (NASDAQ:PTON), CGI Inc. (NYSE:GIB), and Fox Corporation (NASDAQ:FOX). This group of stocks’ market values resemble CDW’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TRU 47 1628502 3
NTRS 35 449745 8
QSR 44 2868475 3
YNDX 44 1403652 9
PTON 50 2109831 14
GIB 19 259686 1
FOX 20 566122 -2
Average 37 1326573 5.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 37 hedge funds with bullish positions and the average amount invested in these stocks was $1327 million. That figure was $1180 million in CDW’s case. Peloton Interactive, Inc. (NASDAQ:PTON) is the most popular stock in this table. On the other hand CGI Inc. (NYSE:GIB) is the least popular one with only 19 bullish hedge fund positions. CDW Corporation (NASDAQ:CDW) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CDW is 72.9. 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. 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 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 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately CDW wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CDW were disappointed as the stock returned -1.8% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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