How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding ConnectOne Bancorp Inc (NASDAQ:CNOB) and determine whether hedge funds had an edge regarding this stock.
Hedge fund interest in ConnectOne Bancorp Inc (NASDAQ:CNOB) shares was flat at the end of last quarter. This is usually a negative indicator. 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 Bed Bath & Beyond Inc. (NASDAQ:BBBY), RadNet Inc. (NASDAQ:RDNT), and FinVolution Group (NYSE:FINV) to gather more data points. Our calculations also showed that CNOB isn't among the 30 most popular stocks among hedge funds (click for Q1 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.
In the eyes of most market participants, hedge funds are assumed to be worthless, outdated financial tools of yesteryear. While there are more than 8000 funds with their doors open at present, Our experts hone in on the top tier of this group, about 850 funds. These investment experts orchestrate most of all hedge funds' total asset base, and by shadowing their unrivaled picks, Insider Monkey has found many investment strategies that have historically beaten the market. Insider Monkey's flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
[caption id="attachment_845793" align="aligncenter" width="392"] Peter Rathjens of Arrowstreet Capital[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let's take a glance at the latest hedge fund action surrounding ConnectOne Bancorp Inc (NASDAQ:CNOB).
What have hedge funds been doing with ConnectOne Bancorp Inc (NASDAQ:CNOB)?
At the end of the first quarter, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CNOB over the last 18 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in ConnectOne Bancorp Inc (NASDAQ:CNOB), which was worth $12.6 million at the end of the third quarter. On the second spot was Castine Capital Management which amassed $10.8 million worth of shares. Arrowstreet Capital, Seidman Investment Partnership, and D E Shaw were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Castine Capital Management allocated the biggest weight to ConnectOne Bancorp Inc (NASDAQ:CNOB), around 5.93% of its 13F portfolio. Seidman Investment Partnership is also relatively very bullish on the stock, dishing out 2.14 percent of its 13F equity portfolio to CNOB.
Due to the fact that ConnectOne Bancorp Inc (NASDAQ:CNOB) has faced bearish sentiment from the entirety of the hedge funds we track, it's easy to see that there exists a select few hedgies that decided to sell off their entire stakes in the first quarter. It's worth mentioning that Matthew Lindenbaum's Basswood Capital dumped the biggest investment of the "upper crust" of funds followed by Insider Monkey, comprising about $1 million in stock, and Michael Gelband's ExodusPoint Capital was right behind this move, as the fund dumped about $0.4 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as ConnectOne Bancorp Inc (NASDAQ:CNOB) but similarly valued. We will take a look at Bed Bath & Beyond Inc. (NASDAQ:BBBY), RadNet Inc. (NASDAQ:RDNT), FinVolution Group (NYSE:FINV), and H&E Equipment Services, Inc. (NASDAQ:HEES). This group of stocks' market caps are similar to CNOB's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BBBY,28,137258,-6 RDNT,16,33104,2 FINV,4,4687,-2 HEES,16,39998,1 Average,16,53762,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $54 million. That figure was $32 million in CNOB's case. Bed Bath & Beyond Inc. (NASDAQ:BBBY) is the most popular stock in this table. On the other hand FinVolution Group (NYSE:FINV) is the least popular one with only 4 bullish hedge fund positions. ConnectOne Bancorp Inc (NASDAQ:CNOB) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on CNOB, though not to the same extent, as the stock returned 20.7% during the second quarter and outperformed the market.
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Disclosure: None. This article was originally published at Insider Monkey.