Is PC Connection, Inc. (CNXN) A Good Stock To Buy?

The successful funds run by legendary investors such as Dan Loeb and David Tepper make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don’t follow. Because of their pay structures, they have strong incentive to do the research necessary to beat the market. That’s why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at PC Connection, Inc. (NASDAQ:CNXN) from the perspective of those successful funds.

Is PC Connection, Inc. (NASDAQ:CNXN) a safe stock to buy now? It looks like hedge funds are getting more optimistic. At the end of September, 12 funds from our database held shares of PC Connection, compared to 10 funds a quarter earlier. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Renren Inc (NYSE:RENN), SunCoke Energy Partners LP (NYSE:SXCP), and Greenhill & Co., Inc. (NYSE:GHL) to gather more data points.

We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.

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Keeping this in mind, let’s take a glance at the recent action encompassing PC Connection, Inc. (NASDAQ:CNXN).

Hedge fund activity in PC Connection, Inc. (NASDAQ:CNXN)

At the end of the third quarter, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, up by 20% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CNXN over the last five quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Royce & Associates, led by Chuck Royce, holds the number one position in PC Connection, Inc. (NASDAQ:CNXN). Royce & Associates has a $51.1 million position in the stock, comprising 0.3% of its 13F portfolio. The second largest stake is held by Renaissance Technologies, one of the largest hedge funds in the world, with a $4.1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining professional money managers that hold long positions comprise Israel Englander’s Millennium Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Roger Ibbotson’s Zebra Capital Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

As aggregate interest increased, key hedge funds were leading the bulls’ herd. Citadel Investment Group, led by Ken Griffin, created the most outsized position in PC Connection, Inc. (NASDAQ:CNXN). Citadel Investment Group had $0.6 million invested in the company at the end of the quarter. Peter Algert and Kevin Coldiron’s Algert Coldiron Investors also made a $0.3 million investment in the stock during the quarter.

Let’s check out hedge fund activity in other stocks similar to PC Connection, Inc. (NASDAQ:CNXN). We will take a look at Renren Inc (NYSE:RENN), SunCoke Energy Partners LP (NYSE:SXCP), Greenhill & Co., Inc. (NYSE:GHL), and New Media Investment Group Inc (NYSE:NEWM). All of these stocks’ market caps resemble CNXN’s market cap.

As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $45 million. That figure was $61 million in CNXN’s case. New Media Investment Group Inc (NYSE:NEWM) is the most popular stock in this table. On the other hand SunCoke Energy Partners LP (NYSE:SXCP) is the least popular one with only three bullish hedge fund positions. PC Connection, Inc. (NASDAQ:CNXN) 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. In this regard New Media Investment Group might be a better candidate to consider taking a long position in.

Disclosure: none