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 750 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 Cogent Communications Group, Inc. (NASDAQ:CCOI) and compare its performance to hedge funds' consensus picks in 2019.
Is Cogent Communications Group, Inc. (NASDAQ:CCOI) a buy here? Money managers are in an optimistic mood. The number of bullish hedge fund bets moved up by 8 in recent months. Our calculations also showed that CCOI isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings). CCOI was in 26 hedge funds' portfolios at the end of the third quarter of 2019. There were 18 hedge funds in our database with CCOI holdings at the end of the previous quarter.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_26073" align="alignnone" width="600"] Jim Simons of Renaissance Technologies[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. With all of this in mind let's analyze the key hedge fund action surrounding Cogent Communications Group, Inc. (NASDAQ:CCOI).
What does smart money think about Cogent Communications Group, Inc. (NASDAQ:CCOI)?
At Q3's end, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 44% from the previous quarter. On the other hand, there were a total of 12 hedge funds with a bullish position in CCOI a year ago. So, let's review 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, Renaissance Technologies has the biggest position in Cogent Communications Group, Inc. (NASDAQ:CCOI), worth close to $199.2 million, amounting to 0.2% of its total 13F portfolio. The second largest stake is held by GLG Partners, managed by Noam Gottesman, which holds a $33.3 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors with similar optimism consist of Israel Englander's Millennium Management, Mark Coe's Intrinsic Edge Capital and Paul Marshall and Ian Wace's Marshall Wace. In terms of the portfolio weights assigned to each position Intrinsic Edge Capital allocated the biggest weight to Cogent Communications Group, Inc. (NASDAQ:CCOI), around 1.7% of its 13F portfolio. Skylands Capital is also relatively very bullish on the stock, dishing out 0.71 percent of its 13F equity portfolio to CCOI.
As industrywide interest jumped, key money managers have been driving this bullishness. Intrinsic Edge Capital, managed by Mark Coe, assembled the largest position in Cogent Communications Group, Inc. (NASDAQ:CCOI). Intrinsic Edge Capital had $15.2 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace also initiated a $6.1 million position during the quarter. The following funds were also among the new CCOI investors: George McCabe's Portolan Capital Management, Benjamin A. Smith's Laurion Capital Management, and Paul Tudor Jones's Tudor Investment Corp.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Cogent Communications Group, Inc. (NASDAQ:CCOI) but similarly valued. We will take a look at Independent Bank Corp (NASDAQ:INDB), AVX Corporation (NYSE:AVX), South State Corporation (NASDAQ:SSB), and Wingstop Inc (NASDAQ:WING). All of these stocks' market caps are closest to CCOI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position INDB,12,20276,1 AVX,13,68575,2 SSB,17,30763,3 WING,23,301040,-1 Average,16.25,105164,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $105 million. That figure was $303 million in CCOI's case. Wingstop Inc (NASDAQ:WING) is the most popular stock in this table. On the other hand Independent Bank Corp (NASDAQ:INDB) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Cogent Communications Group, Inc. (NASDAQ:CCOI) is more popular among hedge funds. 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 10.1 percentage points. Hedge funds were also right about betting on CCOI as the stock returned 52% in 2019 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.