Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 817 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about CDW Corporation (NASDAQ:CDW).
Is CDW a good stock to buy now? CDW Corporation (NASDAQ:CDW) was in 30 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 40. CDW has seen a decrease in support from the world's most elite money managers recently. There were 40 hedge funds in our database with CDW holdings at the end of June. Our calculations also showed that CDW isn't among the 30 most popular stocks among hedge funds (click for Q3 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.
To most stock holders, hedge funds are viewed as unimportant, old financial tools of years past. While there are more than 8000 funds in operation today, We hone in on the bigwigs of this club, approximately 850 funds. It is estimated that this group of investors preside over bulk of all hedge funds' total asset base, and by keeping track of their highest performing stock picks, Insider Monkey has determined various investment strategies that have historically exceeded the broader indices. Insider Monkey's flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .
Jeffrey Ubben of ValueAct Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 website. Keeping this in mind we're going to view the latest hedge fund action surrounding CDW Corporation (NASDAQ:CDW).
Do Hedge Funds Think CDW Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CDW over the last 21 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.
Of the funds tracked by Insider Monkey, Robert Joseph Caruso's Select Equity Group has the largest position in CDW Corporation (NASDAQ:CDW), worth close to $824.2 million, comprising 4.1% of its total 13F portfolio. Coming in second is AQR Capital Management, led by Cliff Asness, holding a $135.7 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Some other professional money managers that hold long positions comprise Bo Shan's Gobi Capital, Renaissance Technologies 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 25.65% of its 13F portfolio. Makaira Partners is also relatively very bullish on the stock, designating 9.54 percent of its 13F equity portfolio to CDW.
Because CDW Corporation (NASDAQ:CDW) has witnessed declining sentiment from hedge fund managers, we can see that there lies a certain "tier" of money managers that decided to sell off their entire stakes heading into Q4. At the top of the heap, James Parsons's Junto Capital Management sold off the largest position of all the hedgies tracked by Insider Monkey, valued at an estimated $7.6 million in stock. Ryan Tolkin (CIO)'s fund, Schonfeld Strategic Advisors, also sold off its stock, about $4 million worth. These transactions are interesting, as total hedge fund interest was cut by 10 funds heading into Q4.
Let's now review hedge fund activity in other stocks similar to CDW Corporation (NASDAQ:CDW). These stocks are Citrix Systems, Inc. (NASDAQ:CTXS), Fox Corporation (NASDAQ:FOX), Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY), Check Point Software Technologies Ltd. (NASDAQ:CHKP), NatWest Group plc (NYSE:NWG), Grifols SA (NASDAQ:GRFS), and ZoomInfo Technologies Inc. (NASDAQ:ZI). All of these stocks' market caps resemble CDW's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CTXS,31,643896,-5 FOX,15,579708,-5 ALNY,35,902645,-3 CHKP,27,820557,-1 NWG,2,2622,-3 GRFS,18,366113,-3 ZI,22,188106,-2 Average,21.4,500521,-3.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.4 hedge funds with bullish positions and the average amount invested in these stocks was $501 million. That figure was $1335 million in CDW's case. Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY) is the most popular stock in this table. On the other hand NatWest Group plc (NYSE:NWG) is the least popular one with only 2 bullish hedge fund positions. CDW Corporation (NASDAQ:CDW) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CDW is 59.9. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. Hedge funds were also right about betting on CDW as the stock returned 12.8% since the end of Q3 (through 12/18) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.