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Was The Smart Money Right About Piling Into CDW Corporation (CDW)?

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·6 min read
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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 900 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 CDW Corporation (NASDAQ:CDW).

CDW Corporation (NASDAQ:CDW) has seen an increase in activity from the world's largest hedge funds recently. CDW Corporation (NASDAQ:CDW) was in 43 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic was previously 40. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 30 hedge funds in our database with CDW positions at the end of the third quarter. Our calculations also showed that CDW isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.

Robert Pohly of Samlyn Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind let's go over the fresh hedge fund action regarding CDW Corporation (NASDAQ:CDW).

Do Hedge Funds Think CDW Is A Good Stock To Buy Now?

At the end of the fourth quarter, a total of 43 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 43% from one quarter earlier. On the other hand, there were a total of 30 hedge funds with a bullish position in CDW a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Select Equity Group held the most valuable stake in CDW Corporation (NASDAQ:CDW), which was worth $983.2 million at the end of the fourth quarter. On the second spot was Renaissance Technologies which amassed $90.3 million worth of shares. Gobi Capital, AQR Capital Management, and Samlyn Capital 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 LFL Advisers allocated the biggest weight to CDW Corporation (NASDAQ:CDW), around 18.95% of its 13F portfolio. Makaira Partners is also relatively very bullish on the stock, setting aside 8.77 percent of its 13F equity portfolio to CDW.

With a general bullishness amongst the heavyweights, specific money managers have jumped into CDW Corporation (NASDAQ:CDW) headfirst. Woodline Partners, managed by Michael Rockefeller and Karl Kroeker, created the most outsized position in CDW Corporation (NASDAQ:CDW). Woodline Partners had $10.5 million invested in the company at the end of the quarter. Michael Gelband's ExodusPoint Capital also made a $9.5 million investment in the stock during the quarter. The other funds with brand new CDW positions are Paul Marshall and Ian Wace's Marshall Wace LLP, Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors, and Jinghua Yan's TwinBeech Capital.

Let's now take a look at hedge fund activity in other stocks similar to CDW Corporation (NASDAQ:CDW). We will take a look at ZoomInfo Technologies Inc. (NASDAQ:ZI), Wheaton Precious Metals Corp. (NYSE:WPM), Expedia Group Inc (NASDAQ:EXPE), Pioneer Natural Resources Company (NYSE:PXD), Hologic, Inc. (NASDAQ:HOLX), PagSeguro Digital Ltd. (NYSE:PAGS), and Check Point Software Technologies Ltd. (NASDAQ:CHKP). This group of stocks' market caps are closest to CDW's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ZI,31,327082,9 WPM,34,755047,5 EXPE,76,6594558,12 PXD,40,685798,-2 HOLX,43,715967,-7 PAGS,25,1840597,1 CHKP,26,775145,-1 Average,39.3,1670599,2.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 39.3 hedge funds with bullish positions and the average amount invested in these stocks was $1671 million. That figure was $1623 million in CDW's case. Expedia Group Inc (NASDAQ:EXPE) is the most popular stock in this table. On the other hand PagSeguro Digital Ltd. (NYSE:PAGS) is the least popular one with only 25 bullish hedge fund positions. CDW Corporation (NASDAQ:CDW) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CDW is 57.6. 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. Hedge funds were also right about betting on CDW as the stock returned 35.7% since the end of Q4 (through 4/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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