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Is Cogent Communications Group, Inc. (CCOI) A Good Stock To Buy?

Al Green

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The one and a half month time period since the end of the third quarter is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by about 4 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Cogent Communications Group, Inc. (NASDAQ:CCOI).

Hedge fund interest in Cogent Communications Group, Inc. (NASDAQ:CCOI) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare CCOI to other stocks including JELD-WEN Holding, Inc. (NYSE:JELD), Nuveen Quality Municipal Income Fund (NYSE:NAD), and Worthington Industries, Inc. (NYSE:WOR) to get a better sense of its popularity.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

RENAISSANCE TECHNOLOGIES

We're going to take a look at the recent hedge fund action encompassing Cogent Communications Group, Inc. (NASDAQ:CCOI).

How have hedgies been trading Cogent Communications Group, Inc. (NASDAQ:CCOI)?

Heading into the fourth quarter of 2018, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, representing no change from one quarter earlier. On the other hand, there were a total of 15 hedge funds with a bullish position in CCOI at the beginning of this year. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds With CCOI Positions

Among these funds, Renaissance Technologies held the most valuable stake in Cogent Communications Group, Inc. (NASDAQ:CCOI), which was worth $188.2 million at the end of the third quarter. On the second spot was GLG Partners which amassed $27.2 million worth of shares. Moreover, Skylands Capital, Arrowstreet Capital, and Two Sigma Advisors were also bullish on Cogent Communications Group, Inc. (NASDAQ:CCOI), allocating a large percentage of their portfolios to this stock.

Since Cogent Communications Group, Inc. (NASDAQ:CCOI) has faced a decline in interest from the aggregate hedge fund industry, logic holds that there lies a certain "tier" of hedgies that elected to cut their full holdings in the third quarter. At the top of the heap, Israel Englander's Millennium Management said goodbye to the largest stake of all the hedgies followed by Insider Monkey, totaling an estimated $1.6 million in stock, and Joel Greenblatt's Gotham Asset Management was right behind this move, as the fund dropped about $0.3 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's check out hedge fund activity in other stocks similar to Cogent Communications Group, Inc. (NASDAQ:CCOI). These stocks are JELD-WEN Holding, Inc. (NYSE:JELD), Nuveen Quality Municipal Income Fund (NYSE:NAD), Worthington Industries, Inc. (NYSE:WOR), and Aerojet Rocketdyne Holdings Inc (NYSE:AJRD). This group of stocks' market caps match CCOI's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position JELD,13,448389,0 NAD,4,2101,1 WOR,10,72428,-2 AJRD,19,372726,7 Average,11.5,223911,1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $224 million. That figure was $239 million in CCOI's case. Aerojet Rocketdyne Holdings Inc (NYSE:AJRD) is the most popular stock in this table. On the other hand Nuveen Quality Municipal Income Fund (NYSE:NAD) is the least popular one with only 4 bullish hedge fund positions. Cogent Communications Group, Inc. (NASDAQ:CCOI) 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 AJRD might be a better candidate to consider a long position.

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

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