Is ScanSource, Inc. (NASDAQ:SCSC) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
ScanSource, Inc. (NASDAQ:SCSC) was in 11 hedge funds' portfolios at the end of September. SCSC shareholders have witnessed an increase in hedge fund sentiment recently. There were 8 hedge funds in our database with SCSC positions at the end of the previous quarter. Our calculations also showed that SCSC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to 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' 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_338852" align="aligncenter" width="2480"] Richard S. Pzena of Pzena Investment Management[/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. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. We're going to analyze the fresh hedge fund action encompassing ScanSource, Inc. (NASDAQ:SCSC).
Hedge fund activity in ScanSource, Inc. (NASDAQ:SCSC)
Heading into the fourth quarter of 2019, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 38% from one quarter earlier. By comparison, 8 hedge funds held shares or bullish call options in SCSC a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
More specifically, Pzena Investment Management was the largest shareholder of ScanSource, Inc. (NASDAQ:SCSC), with a stake worth $38.4 million reported as of the end of September. Trailing Pzena Investment Management was AQR Capital Management, which amassed a stake valued at $4.8 million. Arrowstreet Capital, D E Shaw, and Renaissance Technologies 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 Zebra Capital Management allocated the biggest weight to ScanSource, Inc. (NASDAQ:SCSC), around 0.58% of its 13F portfolio. Pzena Investment Management is also relatively very bullish on the stock, earmarking 0.21 percent of its 13F equity portfolio to SCSC.
As industrywide interest jumped, key money managers were leading the bulls' herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the largest position in ScanSource, Inc. (NASDAQ:SCSC). Arrowstreet Capital had $2.3 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also initiated a $0.2 million position during the quarter. The only other fund with a new position in the stock is Gavin Saitowitz and Cisco J. del Valle's Springbok Capital.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as ScanSource, Inc. (NASDAQ:SCSC) but similarly valued. These stocks are Dime Community Bancshares, Inc. (NASDAQ:DCOM), William Lyon Homes (NYSE:WLH), PetIQ, Inc. (NASDAQ:PETQ), and Axonics Modulation Technologies, Inc. (NASDAQ:AXNX). All of these stocks' market caps match SCSC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DCOM,10,41957,1 WLH,29,164043,5 PETQ,16,96449,3 AXNX,11,93838,-1 Average,16.5,99072,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $99 million. That figure was $53 million in SCSC's case. William Lyon Homes (NYSE:WLH) is the most popular stock in this table. On the other hand Dime Community Bancshares, Inc. (NASDAQ:DCOM) is the least popular one with only 10 bullish hedge fund positions. ScanSource, Inc. (NASDAQ:SCSC) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on SCSC as the stock returned 15.9% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.