Were Hedge Funds Right About Souring On ConnectOne Bancorp Inc (CNOB)?

Is ConnectOne Bancorp Inc (NASDAQ:CNOB) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also have numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

ConnectOne Bancorp Inc (NASDAQ:CNOB) investors should pay attention to a decrease in support from the world’s most elite money managers in recent months. CNOB was in 9 hedge funds’ portfolios at the end of the second quarter of 2019. There were 10 hedge funds in our database with CNOB holdings at the end of the previous quarter. Our calculations also showed that CNOB isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Matthew Lindenbaum Basswood Capital

n addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources  like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. Now we’re going to take a gander at the fresh hedge fund action surrounding ConnectOne Bancorp Inc (NASDAQ:CNOB).

What does smart money think about ConnectOne Bancorp Inc (NASDAQ:CNOB)?

At Q2’s end, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in CNOB over the last 16 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.


The largest stake in ConnectOne Bancorp Inc (NASDAQ:CNOB) was held by Renaissance Technologies, which reported holding $24.6 million worth of stock at the end of March. It was followed by Seidman Investment Partnership with a $8.2 million position. Other investors bullish on the company included Basswood Capital, D E Shaw, and Citadel Investment Group.

Judging by the fact that ConnectOne Bancorp Inc (NASDAQ:CNOB) has witnessed a decline in interest from the smart money, logic holds that there exists a select few fund managers that decided to sell off their entire stakes in the second quarter. It’s worth mentioning that Paul Marshall and Ian Wace’s Marshall Wace LLP dumped the biggest investment of the “upper crust” of funds watched by Insider Monkey, worth an estimated $1.8 million in stock, and Cliff Asness’s AQR Capital Management was right behind this move, as the fund sold off about $0.3 million worth. These moves are interesting, as total hedge fund interest was cut by 1 funds in the second quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as ConnectOne Bancorp Inc (NASDAQ:CNOB) but similarly valued. These stocks are Central Securities Corporation (NYSE:CET), Cooper-Standard Holdings Inc (NYSE:CPS), Monarch Casino & Resort, Inc. (NASDAQ:MCRI), and EMC Insurance Group Inc. (NASDAQ:EMCI). This group of stocks’ market valuations are similar to CNOB’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CET 2 11334 -1
CPS 15 42030 0
MCRI 8 118665 -2
EMCI 5 16102 -1
Average 7.5 47033 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 7.5 hedge funds with bullish positions and the average amount invested in these stocks was $47 million. That figure was $45 million in CNOB’s case. Cooper-Standard Holdings Inc (NYSE:CPS) is the most popular stock in this table. On the other hand Central Securities Corporation (NYSE:CET) is the least popular one with only 2 bullish hedge fund positions. ConnectOne Bancorp Inc (NASDAQ:CNOB) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CNOB wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CNOB were disappointed as the stock returned -1.6% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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