How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding CDW Corporation (NASDAQ:CDW) and determine whether hedge funds had an edge regarding this stock.
Is CDW Corporation (NASDAQ:CDW) undervalued? The best stock pickers were becoming hopeful. The number of bullish hedge fund bets increased by 6 lately. Our calculations also showed that CDW isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). CDW was in 36 hedge funds’ portfolios at the end of March. There were 30 hedge funds in our database with CDW positions at the end of the previous quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
If you’d ask most investors, hedge funds are viewed as worthless, outdated financial vehicles of yesteryear. While there are over 8000 funds with their doors open at present, Our experts choose to focus on the top tier of this group, around 850 funds. These money managers control the lion’s share of all hedge funds’ total asset base, and by observing their best picks, Insider Monkey has come up with a few investment strategies that have historically exceeded the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
Bruce Kovner of Caxton Associates LP
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s check out the new hedge fund action encompassing CDW Corporation (NASDAQ:CDW).
What have hedge funds been doing with CDW Corporation (NASDAQ:CDW)?
At Q1’s end, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of 20% from the fourth quarter of 2019. By comparison, 28 hedge funds held shares or bullish call options in CDW a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Select Equity Group, managed by Robert Joseph Caruso, holds the largest position in CDW Corporation (NASDAQ:CDW). Select Equity Group has a $549.9 million position in the stock, comprising 3.8% of its 13F portfolio. Coming in second is AQR Capital Management, managed by Cliff Asness, which holds a $110.6 million position; 0.2% of its 13F portfolio is allocated to the company. Other peers that hold long positions contain Bo Shan’s Gobi Capital, Noam Gottesman’s GLG Partners and Peter Lewis’s LFL Advisers. In terms of the portfolio weights assigned to each position LFL Advisers allocated the biggest weight to CDW Corporation (NASDAQ:CDW), around 24.22% of its 13F portfolio. Makaira Partners is also relatively very bullish on the stock, dishing out 10.11 percent of its 13F equity portfolio to CDW.
With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Citadel Investment Group, managed by Ken Griffin, initiated the most valuable position in CDW Corporation (NASDAQ:CDW). Citadel Investment Group had $14 million invested in the company at the end of the quarter. Mikal Patel’s Oribel Capital Management also made a $6.8 million investment in the stock during the quarter. The other funds with brand new CDW positions are David Brown’s Hawk Ridge Management, John Overdeck and David Siegel’s Two Sigma Advisors, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.
Let’s go over hedge fund activity in other stocks similar to CDW Corporation (NASDAQ:CDW). We will take a look at Deutsche Bank AG (NYSE:DB), BioNTech SE (NASDAQ:BNTX), Maxim Integrated Products Inc. (NASDAQ:MXIM), and CGI Inc. (NYSE:GIB). This group of stocks’ market caps are closest to CDW’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DB | 12 | 916383 | 0 |
| BNTX | 6 | 37923 | 2 |
| MXIM | 30 | 213575 | -2 |
| GIB | 18 | 246597 | -1 |
| Average | 16.5 | 353620 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $354 million. That figure was $947 million in CDW’s case. Maxim Integrated Products Inc. (NASDAQ:MXIM) is the most popular stock in this table. On the other hand BioNTech SE (NASDAQ:BNTX) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks CDW Corporation (NASDAQ:CDW) is more popular among hedge funds. 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 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on CDW, though not to the same extent, as the stock returned 25% in Q2 and outperformed the market as well.
Follow Cdw Corp (Old Filings) (NASDAQ:CDW)
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Disclosure: None. This article was originally published at Insider Monkey.
