Do Hedge Funds Love PC Connection, Inc. (CNXN)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded PC Connection, Inc. (NASDAQ:CNXN) and determine whether the smart money was really smart about this stock.

PC Connection, Inc. (NASDAQ:CNXN) investors should be aware of a decrease in activity from the world’s largest hedge funds lately. CNXN was in 10 hedge funds’ portfolios at the end of March. There were 15 hedge funds in our database with CNXN holdings at the end of the previous quarter. Our calculations also showed that CNXN 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).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Philip Hempleman of Ardsley Partners

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. Keeping this in mind let’s take a gander at the new hedge fund action encompassing PC Connection, Inc. (NASDAQ:CNXN).

How have hedgies been trading PC Connection, Inc. (NASDAQ:CNXN)?

At the end of the first quarter, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -33% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards CNXN over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Royce & Associates held the most valuable stake in PC Connection, Inc. (NASDAQ:CNXN), which was worth $27.4 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $8 million worth of shares. G2 Investment Partners Management, Citadel Investment Group, and Algert Coldiron Investors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position G2 Investment Partners Management allocated the biggest weight to PC Connection, Inc. (NASDAQ:CNXN), around 1.21% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, designating 0.89 percent of its 13F equity portfolio to CNXN.

Since PC Connection, Inc. (NASDAQ:CNXN) has faced falling interest from the aggregate hedge fund industry, logic holds that there were a few money managers who were dropping their positions entirely heading into Q4. At the top of the heap, Philip Hempleman’s Ardsley Partners dropped the biggest position of the “upper crust” of funds watched by Insider Monkey, totaling about $5.7 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also said goodbye to its stock, about $1.5 million worth. These transactions are important to note, as total hedge fund interest fell by 5 funds heading into Q4.

Let’s now review hedge fund activity in other stocks similar to PC Connection, Inc. (NASDAQ:CNXN). We will take a look at TG Therapeutics Inc (NASDAQ:TGTX), Plug Power, Inc. (NASDAQ:PLUG), New Frontier Health Corporation (NYSE:NFH), and Inovio Pharmaceuticals Inc (NYSE:INO). All of these stocks’ market caps are similar to CNXN’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $137 million. That figure was $43 million in CNXN’s case. TG Therapeutics Inc (NASDAQ:TGTX) is the most popular stock in this table. On the other hand Inovio Pharmaceuticals Inc (NYSE:INO) is the least popular one with only 8 bullish hedge fund positions. PC Connection, Inc. (NASDAQ:CNXN) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately CNXN wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); CNXN investors were disappointed as the stock returned 12.5% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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