Is Consolidated Communications Holdings Inc (CNSL) A Good Stock To Buy?

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The S&P 500 Index gained 7.6% in the 12 month-period that ended November 21, while less than 49% of its stocks beat the benchmark. In contrast, the 30 most popular mid-cap stocks among the top hedge fund investors tracked by the Insider Monkey team returned 18% over the same period, which provides evidence that these money managers do have great stock picking abilities. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Consolidated Communications Holdings Inc (NASDAQ:CNSL).

Hedge fund interest in Consolidated Communications Holdings Inc (NASDAQ:CNSL) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare CNSL to other stocks including Builders FirstSource, Inc. (NASDAQ:BLDR), TopBuild Corp (NYSE:BLD), and Emergent Biosolutions Inc (NYSE:EBS) to get a better sense of its popularity.

We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.

With all of this in mind, we’re going to view the fresh action surrounding Consolidated Communications Holdings Inc (NASDAQ:CNSL).

What does the smart money think about Consolidated Communications Holdings Inc (NASDAQ:CNSL)?

Heading into the fourth quarter of 2016, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, unchanged from the second quarter of 2016. The graph below displays the number of hedge funds with bullish position in CNSL over the last 5 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies, one of the largest hedge funds in the world has the largest position in Consolidated Communications Holdings Inc (NASDAQ:CNSL), worth close to $1.1 million, accounting for less than 0.1% of its total 13F portfolio. The second most bullish fund manager is GAMCO Investors, led by Mario Gabelli, holding a $0.6 million position; less than 0.1% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that are bullish encompass Mayree Clark’s Eachwin Capital, John Overdeck and David Siegel’s Two Sigma Advisors and Cliff Asness’s AQR Capital Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

We view hedge fund activity in Consolidated Communications Holdings Inc (NASDAQ:CNSL) unfavorable, but in this case there was only a single hedge fund selling its entire position: Hutchin Hill Capital. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Two Sigma Advisors).

Let’s now review hedge fund activity in other stocks similar to Consolidated Communications Holdings Inc (NASDAQ:CNSL). We will take a look at Builders FirstSource, Inc. (NASDAQ:BLDR), TopBuild Corp (NYSE:BLD), Emergent Biosolutions Inc (NYSE:EBS), and Pacira Pharmaceuticals Inc (NASDAQ:PCRX). This group of stocks’ market values are closest to CNSL’s market value.

As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $256 million. That figure was $3 million in CNSL’s case. Builders FirstSource, Inc. (NASDAQ:BLDR) is the most popular stock in this table. On the other hand Emergent Biosolutions Inc (NYSE:EBS) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Consolidated Communications Holdings Inc (NASDAQ:CNSL) is even less popular than EBS. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

Disclosure: none.