Do Hedge Funds Love Phibro Animal Health Corp (PAHC)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Phibro Animal Health Corp (NASDAQ:PAHC) based on that data.

Hedge fund interest in Phibro Animal Health Corp (NASDAQ:PAHC) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Health Catalyst, Inc (NASDAQ:HCAT), Infinera Corp. (NASDAQ:INFN), and Retail Opportunity Investments Corp (NASDAQ:ROIC) to gather more data points. Our calculations also showed that PAHC isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Noam Gottesman of GLG Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology’s influence will go beyond online payments. So, we are checking out this futurist’s moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s view the fresh hedge fund action encompassing Phibro Animal Health Corp (NASDAQ:PAHC).

Hedge fund activity in Phibro Animal Health Corp (NASDAQ:PAHC)

Heading into the second quarter of 2020, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the fourth quarter of 2019. On the other hand, there were a total of 18 hedge funds with a bullish position in PAHC a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Phibro Animal Health Corp (NASDAQ:PAHC) was held by Renaissance Technologies, which reported holding $21.1 million worth of stock at the end of September. It was followed by Cove Street Capital with a $14.5 million position. Other investors bullish on the company included AQR Capital Management, D E Shaw, and GLG Partners. In terms of the portfolio weights assigned to each position Cove Street Capital allocated the biggest weight to Phibro Animal Health Corp (NASDAQ:PAHC), around 2.96% of its 13F portfolio. Factorial Partners is also relatively very bullish on the stock, designating 1.53 percent of its 13F equity portfolio to PAHC.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Algert Coldiron Investors. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Engineers Gate Manager).

Let’s also examine hedge fund activity in other stocks similar to Phibro Animal Health Corp (NASDAQ:PAHC). These stocks are Health Catalyst, Inc (NASDAQ:HCAT), Infinera Corp. (NASDAQ:INFN), Retail Opportunity Investments Corp (NASDAQ:ROIC), and Fluor Corporation (NYSE:FLR). This group of stocks’ market caps are closest to PAHC’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $108 million. That figure was $54 million in PAHC’s case. Fluor Corporation (NYSE:FLR) is the most popular stock in this table. On the other hand Health Catalyst, Inc (NASDAQ:HCAT) is the least popular one with only 14 bullish hedge fund positions. Phibro Animal Health Corp (NASDAQ:PAHC) is not the least popular stock in this group but hedge fund interest is still below average. 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 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 13.3% in 2020 through June 25th and surpassed the market by 16.8 percentage points. Unfortunately PAHC wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); PAHC investors were disappointed as the stock returned 7.6% during the second quarter 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 most of these stocks already outperformed the market in 2020.

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