ScanSource, Inc. (SCSC): Are Hedge Funds Right About This Stock?

As we already know from media reports and hedge fund investor letters, many hedge funds lost money in the third quarter, blaming macroeconomic conditions and unpredictable events that hit several sectors, with healthcare among them. Nevertheless, most investors decided to stick to their bullish theses and their long-term focus allows us to profit from the recent declines. In particular, let’s take a look at what hedge funds think about ScanSource, Inc. (NASDAQ:SCSC) in this article.

ScanSource, Inc. (NASDAQ:SCSC)’s stock has declined by 12% since the beginning of the year, but it is trading at 11.9 times forward earnings. The smart money is in a bullish mood with the number of funds holding shares of the company increasing by 5 recently. In this way, SCSC was in 13 hedge funds’ portfolios at the end of September. At the end of this article we will also compare SCSC to other stocks, Boston Private Financial Hldg Inc (NASDAQ:BPFH), and Rush Enterprises, Inc. (NASDAQ:RUSHA) to get a better sense of its popularity.

In the eyes of most stock holders, hedge funds are seen as slow, old investment vehicles of yesteryear. While there are over 8000 funds trading at present, Our experts choose to focus on the upper echelon of this club, about 700 funds. It is estimated that this group of investors orchestrate the lion’s share of the smart money’s total asset base, and by watching their top picks, Insider Monkey has deciphered various investment strategies that have historically defeated the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy outrun the S&P 500 index by 12 percentage points annually for a decade in their back tests.

Now, let’s go over the new action regarding ScanSource, Inc. (NASDAQ:SCSC).

How are hedge funds trading ScanSource, Inc. (NASDAQ:SCSC)?

Heading into Q4, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, an increase of 63% from one quarter earlier. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Royce & Associates, managed by Chuck Royce, holds the largest position in ScanSource, Inc. (NASDAQ:SCSC). Royce & Associates has a $61.2 million position in the stock, comprising 0.3% of its 13F portfolio. Coming in second is First Pacific Advisors LLC, managed by Robert Rodriguez and Steven Romick, which holds a $26.3 million position; 0.2% of its 13F portfolio is allocated to the stock. Some other peers with similar optimism encompass Joel Greenblatt’s Gotham Asset Management, Israel Englander’s Millennium Management and John Overdeck, and David Siegel’s Two Sigma Advisors.

As one would reasonably expect, key money managers have jumped into ScanSource, Inc. (NASDAQ:SCSC) headfirst. Gotham Asset Management initiated the most valuable position in ScanSource, Inc. (NASDAQ:SCSC). Gotham Asset Management had $4.5 million invested in the company at the end of the quarter. Millennium Management also made an $4.3 million investment in the stock during the quarter. The other funds with brand new SCSC positions are Neil Chriss’s Hutchin Hill Capital, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Ken Griffin’s Citadel Investment Group.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as ScanSource, Inc. (NASDAQ:SCSC) but similarly valued. These stocks are Boston Private Financial Hldg Inc (NASDAQ:BPFH), Rush Enterprises, Inc. (NASDAQ:RUSHA), and 1st Source Corporation (NASDAQ:SRCE). This group of stocks’ market caps are closest to SCSC’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 $36 million. That figure was $102 million in SCSC’s case. Boston Private Financial Hldg Inc (NASDAQ:BPFH) is the most popular stock in this table. On the other hand 1st Source Corporation (NASDAQ:SRCE) is the least popular one with only 5 bullish hedge fund positions. ScanSource, Inc. (NASDAQ:SCSC) 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 BPFH might be a better candidate to consider a long position.