At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Cogent Communications Holdings Inc. (NASDAQ:CCOI) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Cogent Communications Holdings Inc. (NASDAQ:CCOI) investors should be aware of an increase in support from the world's most elite money managers recently. Cogent Communications Holdings Inc. (NASDAQ:CCOI) was in 28 hedge funds' portfolios at the end of June. The all time high for this statistics is 30. There were 27 hedge funds in our database with CCOI positions at the end of the first quarter. Our calculations also showed that CCOI isn't among the 30 most popular stocks among hedge funds (click for Q2 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.
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' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Stuart Zimmer of Zimmer Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. With all of this in mind we're going to take a look at the fresh hedge fund action surrounding Cogent Communications Holdings Inc. (NASDAQ:CCOI).
What have hedge funds been doing with Cogent Communications Holdings Inc. (NASDAQ:CCOI)?
Heading into the third quarter of 2020, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CCOI over the last 20 quarters. So, let's see 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 most valuable position in Cogent Communications Holdings Inc. (NASDAQ:CCOI), worth close to $270.6 million, accounting for 0.2% of its total 13F portfolio. On Renaissance Technologies's heels is Zimmer Partners, led by Stuart J. Zimmer, holding a $45.4 million position; the fund has 0.6% of its 13F portfolio invested in the stock. Other peers that are bullish encompass Richard Merage's MIG Capital, Noam Gottesman's GLG Partners and Dmitry Balyasny's Balyasny Asset Management. In terms of the portfolio weights assigned to each position MIG Capital allocated the biggest weight to Cogent Communications Holdings Inc. (NASDAQ:CCOI), around 4.11% of its 13F portfolio. Intrinsic Edge Capital is also relatively very bullish on the stock, designating 0.95 percent of its 13F equity portfolio to CCOI.
As one would reasonably expect, specific money managers have been driving this bullishness. Balyasny Asset Management, managed by Dmitry Balyasny, established the most valuable position in Cogent Communications Holdings Inc. (NASDAQ:CCOI). Balyasny Asset Management had $12.3 million invested in the company at the end of the quarter. Sander Gerber's Hudson Bay Capital Management also initiated a $5.5 million position during the quarter. The other funds with brand new CCOI positions are Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors, Jinghua Yan's TwinBeech Capital, and Peter Muller's PDT Partners.
Let's check out hedge fund activity in other stocks similar to Cogent Communications Holdings Inc. (NASDAQ:CCOI). We will take a look at Parsons Corporation (NYSE:PSN), Texas Roadhouse Inc (NASDAQ:TXRH), Harley-Davidson, Inc. (NYSE:HOG), Halozyme Therapeutics, Inc. (NASDAQ:HALO), PS Business Parks Inc (NYSE:PSB), Emcor Group Inc (NYSE:EME), and FibroGen Inc (NASDAQ:FGEN). This group of stocks' market valuations match CCOI's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PSN,15,81243,0 TXRH,25,233801,-2 HOG,30,392806,13 HALO,26,246712,3 PSB,20,123459,3 EME,29,191491,5 FGEN,25,310554,3 Average,24.3,225724,3.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.3 hedge funds with bullish positions and the average amount invested in these stocks was $226 million. That figure was $465 million in CCOI's case. Harley-Davidson, Inc. (NYSE:HOG) is the most popular stock in this table. On the other hand Parsons Corporation (NYSE:PSN) is the least popular one with only 15 bullish hedge fund positions. Cogent Communications Holdings Inc. (NASDAQ:CCOI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CCOI is 77.3. 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. 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 21.3% in 2020 through September 25th and beat the market by 17.7 percentage points. Unfortunately CCOI wasn't nearly as popular as these 10 stocks and hedge funds that were betting on CCOI were disappointed as the stock returned -22.8% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.