Is CNXN Stock A Buy Here?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards PC Connection, Inc. (NASDAQ:CNXN).

Is CNXN stock a buy? The smart money was getting less bullish. The number of long hedge fund bets were cut by 1 in recent months. PC Connection, Inc. (NASDAQ:CNXN) was in 4 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 15. Our calculations also showed that CNXN isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 5 hedge funds in our database with CNXN holdings at the end of December.

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 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Roger Ibbotson of Zebra Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund wants to buy this $27 biotech stock for $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind let’s review the latest hedge fund action regarding PC Connection, Inc. (NASDAQ:CNXN).

Do Hedge Funds Think CNXN Is A Good Stock To Buy Now?

At Q1’s end, a total of 4 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from the fourth quarter of 2020. On the other hand, there were a total of 10 hedge funds with a bullish position in CNXN 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.

According to Insider Monkey’s hedge fund database, Chuck Royce’s Royce & Associates has the biggest position in PC Connection, Inc. (NASDAQ:CNXN), worth close to $20.3 million, comprising 0.1% of its total 13F portfolio. On Royce & Associates’s heels is Citadel Investment Group, managed by Ken Griffin, which holds a $2.3 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other peers that are bullish encompass Roger Ibbotson’s Zebra Capital Management, Cliff Asness’s AQR Capital Management and . In terms of the portfolio weights assigned to each position Zebra Capital Management allocated the biggest weight to PC Connection, Inc. (NASDAQ:CNXN), around 1.34% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, dishing out 0.14 percent of its 13F equity portfolio to CNXN.

Because PC Connection, Inc. (NASDAQ:CNXN) has witnessed a decline in interest from hedge fund managers, we can see that there lies a certain “tier” of hedgies that elected to cut their entire stakes by the end of the first quarter. Intriguingly, Valerie Malter’s Matarin Capital dropped the largest investment of the 750 funds monitored by Insider Monkey, totaling about $2.4 million in stock. David Harding’s fund, Winton Capital Management, also sold off its stock, about $1.2 million worth. These moves are interesting, as aggregate hedge fund interest fell by 1 funds by the end of the first quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as PC Connection, Inc. (NASDAQ:CNXN) but similarly valued. These stocks are NextGen Healthcare, Inc. (NASDAQ:NXGN), Innoviva, Inc. (NASDAQ:INVA), Green Plains Inc. (NASDAQ:GPRE), Meredith Corporation (NYSE:MDP), Merchants Bancorp (NASDAQ:MBIN), Radware Ltd. (NASDAQ:RDWR), and MYR Group Inc (NASDAQ:MYRG). This group of stocks’ market caps resemble CNXN’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.1 hedge funds with bullish positions and the average amount invested in these stocks was $161 million. That figure was $25 million in CNXN’s case. Green Plains Inc. (NASDAQ:GPRE) is the most popular stock in this table. On the other hand Merchants Bancorp (NASDAQ:MBIN) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks PC Connection, Inc. (NASDAQ:CNXN) is even less popular than MBIN. Our overall hedge fund sentiment score for CNXN is 12. 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. Hedge funds dodged a bullet by taking a bearish stance towards CNXN. Our calculations showed that the top 10 most popular hedge fund stocks returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.2% in 2021 through June 11th but managed to beat the market again by 3.3 percentage points. Unfortunately CNXN wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was very bearish); CNXN investors were disappointed as the stock returned 3.2% since the end of the first quarter (through 6/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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