We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Conn’s, Inc. (NASDAQ:CONN).
Is Conn’s, Inc. (NASDAQ:CONN) a superb investment today? Investors who are in the know were taking a bearish view. The number of bullish hedge fund bets decreased by 2 in recent months. Conn’s, Inc. (NASDAQ:CONN) was in 14 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 21. Our calculations also showed that CONN 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.
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 15 best blue chip stocks 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind let’s view the key hedge fund action encompassing Conn’s, Inc. (NASDAQ:CONN).
Do Hedge Funds Think CONN Is A Good Stock To Buy Now?
At third quarter’s end, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from one quarter earlier. On the other hand, there were a total of 19 hedge funds with a bullish position in CONN a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Conn’s, Inc. (NASDAQ:CONN) was held by D E Shaw, which reported holding $6.1 million worth of stock at the end of September. It was followed by Two Sigma Advisors with a $3.4 million position. Other investors bullish on the company included Arrowstreet Capital, Balyasny Asset Management, and Millennium Management. In terms of the portfolio weights assigned to each position Weld Capital Management allocated the biggest weight to Conn’s, Inc. (NASDAQ:CONN), around 0.1% of its 13F portfolio. PDT Partners is also relatively very bullish on the stock, setting aside 0.06 percent of its 13F equity portfolio to CONN.
Because Conn’s, Inc. (NASDAQ:CONN) has witnessed falling interest from the entirety of the hedge funds we track, it’s safe to say that there exists a select few hedgies that decided to sell off their positions entirely last quarter. Interestingly, Chuck Royce’s Royce & Associates dumped the biggest position of the 750 funds watched by Insider Monkey, totaling close to $4.2 million in stock, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors was right behind this move, as the fund dropped about $0.4 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 2 funds last quarter.
Let’s now review hedge fund activity in other stocks similar to Conn’s, Inc. (NASDAQ:CONN). These stocks are HBT Financial, Inc. (NASDAQ:HBT), Galiano Gold Inc. (NYSE:GAU), Willdan Group, Inc. (NASDAQ:WLDN), Farmers National Banc Corp (NASDAQ:FMNB), Catalyst Pharmaceuticals, Inc. (NASDAQ:CPRX), CytomX Therapeutics, Inc. (NASDAQ:CTMX), and Hooker Furniture Corporation (NASDAQ:HOFT). This group of stocks’ market values are similar to CONN’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.6 hedge funds with bullish positions and the average amount invested in these stocks was $41 million. That figure was $21 million in CONN’s case. CytomX Therapeutics, Inc. (NASDAQ:CTMX) is the most popular stock in this table. On the other hand Willdan Group, Inc. (NASDAQ:WLDN) is the least popular one with only 3 bullish hedge fund positions. Conn’s, Inc. (NASDAQ:CONN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CONN is 55.4. 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 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 32.9% in 2020 through December 8th and beat the market again by 16.2 percentage points. Unfortunately CONN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CONN were disappointed as the stock returned 9.8% since the end of September (through 12/8) 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.
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Disclosure: None. This article was originally published at Insider Monkey.