The fourth quarter was a rough one for most investors, as fears of a rising interest rate environment in the U.S, a trade war with China, and a more or less stagnant Europe, weighed heavily on the minds of investors. Both the S&P 500 and Russell 2000 sank as a result, with the Russell 2000, which is composed of smaller companies, being hit especially hard. This was primarily due to hedge funds, which are big supporters of small-cap stocks, pulling some of their capital out of the volatile markets during this time. Let’s look at how this market volatility affected the sentiment of hedge funds towards Patrick Industries, Inc. (NASDAQ:PATK), and what that likely means for the prospects of the company and its stock.
Patrick Industries, Inc. (NASDAQ:PATK) was in 18 hedge funds’ portfolios at the end of September. PATK shareholders have witnessed a decrease in activity from the world’s largest hedge funds of late. There were 21 hedge funds in our database with PATK holdings at the end of the previous quarter. Our calculations also showed that PATK isn’t among the 30 most popular stocks among hedge funds.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 6.3% year to date (through December 3rd) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 18 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Cliff Asness of AQR Capital Management
We’re going to take a glance at the new hedge fund action regarding Patrick Industries, Inc. (NASDAQ:PATK).
Hedge fund activity in Patrick Industries, Inc. (NASDAQ:PATK)
At Q3’s end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards PATK over the last 13 quarters. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
More specifically, Tontine Asset Management was the largest shareholder of Patrick Industries, Inc. (NASDAQ:PATK), with a stake worth $72.1 million reported as of the end of September. Trailing Tontine Asset Management was Renaissance Technologies, which amassed a stake valued at $6.1 million. Guardian Point Capital, AQR Capital Management, and Algert Coldiron Investors were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that Patrick Industries, Inc. (NASDAQ:PATK) has witnessed declining sentiment from hedge fund managers, we can see that there exists a select few fund managers that elected to cut their full holdings heading into Q3. It’s worth mentioning that Lee Ainslie’s Maverick Capital sold off the largest investment of the 700 funds watched by Insider Monkey, valued at an estimated $1.3 million in stock. Joel Greenblatt’s fund, Gotham Asset Management, also dumped its stock, about $0.7 million worth. These moves are important to note, as total hedge fund interest dropped by 3 funds heading into Q3.
Let’s now take a look at hedge fund activity in other stocks similar to Patrick Industries, Inc. (NASDAQ:PATK). These stocks are Carbon Black, Inc. (NASDAQ:CBLK), Companhia Paranaense de Energia – COPEL (NYSE:ELP), Dine Brands Global, Inc. (NYSE:DIN), and Diplomat Pharmacy Inc (NYSE:DPLO). All of these stocks’ market caps match PATK’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CBLK | 9 | 20312 | -4 |
| ELP | 8 | 15727 | 0 |
| DIN | 19 | 113317 | 6 |
| DPLO | 13 | 64043 | 0 |
| Average | 12.25 | 53350 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $53 million. That figure was $104 million in PATK’s case. Dine Brands Global, Inc. (NYSE:DIN) is the most popular stock in this table. On the other hand Companhia Paranaense de Energia – COPEL (NYSE:ELP) is the least popular one with only 8 bullish hedge fund positions. Patrick Industries, Inc. (NASDAQ:PATK) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard DIN might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
