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 Concentrix Corporation (NASDAQ:CNXC).
Is CNXC a good stock to buy? Concentrix Corporation (NASDAQ:CNXC) was in 23 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 21. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. CNXC investors should pay attention to an increase in activity from the world’s largest hedge funds recently. There were 21 hedge funds in our database with CNXC holdings at the end of December. Our calculations also showed that CNXC isn’t among the 30 most popular stocks among hedge funds (click for Q1 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. 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 115 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.
David Einhorn of Greenlight Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery 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. Keeping this in mind we’re going to take a look at the new hedge fund action surrounding Concentrix Corporation (NASDAQ:CNXC).
Do Hedge Funds Think CNXC Is A Good Stock To Buy Now?
At first quarter’s end, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CNXC over the last 23 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Lyrical Asset Management held the most valuable stake in Concentrix Corporation (NASDAQ:CNXC), which was worth $169.8 million at the end of the fourth quarter. On the second spot was Abrams Bison Investments which amassed $140.3 million worth of shares. Greenlight Capital, Citadel Investment Group, and Select Equity Group 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 Abrams Bison Investments allocated the biggest weight to Concentrix Corporation (NASDAQ:CNXC), around 12.65% of its 13F portfolio. Greenlight Capital is also relatively very bullish on the stock, earmarking 4.96 percent of its 13F equity portfolio to CNXC.
With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. Millennium Management, managed by Israel Englander, initiated the largest position in Concentrix Corporation (NASDAQ:CNXC). Millennium Management had $11.8 million invested in the company at the end of the quarter. Donald Sussman’s Paloma Partners also made a $1.7 million investment in the stock during the quarter. The following funds were also among the new CNXC investors: Paul Marshall and Ian Wace’s Marshall Wace LLP, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, and Greg Eisner’s Engineers Gate Manager.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Concentrix Corporation (NASDAQ:CNXC) but similarly valued. We will take a look at Ternium S.A. (NYSE:TX), Fiverr International Ltd. (NYSE:FVRR), National Retail Properties, Inc. (NYSE:NNN), Anaplan, Inc. (NYSE:PLAN), Fate Therapeutics Inc (NASDAQ:FATE), Fastly, Inc. (NYSE:FSLY), and Performance Food Group Company (NYSE:PFGC). This group of stocks’ market valuations resemble CNXC’s market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TX,14,203694,1 FVRR,27,398791,-2 NNN,22,289672,8 PLAN,55,2367556,-8 FATE,39,2634993,5 FSLY,26,1323528,-6 PFGC,18,330563,-4 Average,28.7,1078400,-0.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.7 hedge funds with bullish positions and the average amount invested in these stocks was $1078 million. That figure was $577 million in CNXC’s case. Anaplan, Inc. (NYSE:PLAN) is the most popular stock in this table. On the other hand Ternium S.A. (NYSE:TX) is the least popular one with only 14 bullish hedge fund positions. Concentrix Corporation (NASDAQ:CNXC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CNXC is 48. 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 negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and surpassed the market again by 7.7 percentage points. Unfortunately CNXC wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); CNXC investors were disappointed as the stock returned 6.3% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.
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Disclosure: None. This article was originally published at Insider Monkey.