At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Primo Water Corporation (NYSE:PRMW) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Is Primo Water Corporation (NYSE:PRMW) going to take off soon? Investors who are in the know were in a bearish mood. The number of long hedge fund bets dropped by 5 lately. Primo Water Corporation (NYSE:PRMW) was in 31 hedge funds’ portfolios at the end of June. The all time high for this statistics is 36. Our calculations also showed that PRMW isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
In the eyes of most traders, hedge funds are seen as worthless, outdated financial vehicles of yesteryear. While there are over 8000 funds trading at the moment, We choose to focus on the crème de la crème of this club, about 850 funds. These money managers administer the lion’s share of the hedge fund industry’s total capital, and by watching their inimitable investments, Insider Monkey has figured out several investment strategies that have historically defeated the market. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
Israel Englander of Millennium Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind let’s take a glance at the new hedge fund action encompassing Primo Water Corporation (NYSE:PRMW).
What have hedge funds been doing with Primo Water Corporation (NYSE:PRMW)?
At the end of the second quarter, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from the previous quarter. On the other hand, there were a total of 12 hedge funds with a bullish position in PRMW a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Nitorum Capital, managed by Seth Rosen, holds the most valuable position in Primo Water Corporation (NYSE:PRMW). Nitorum Capital has a $143.3 million position in the stock, comprising 7.4% of its 13F portfolio. Coming in second is P2 Capital Partners, managed by Claus Moller, which holds a $110.9 million position; 9.3% of its 13F portfolio is allocated to the stock. Some other members of the smart money with similar optimism encompass John Murphy’s Levin Easterly Partners, Kevin Oram and Peter Uddo’s Praesidium Investment Management Company and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position StackLine Partners allocated the biggest weight to Primo Water Corporation (NYSE:PRMW), around 9.52% of its 13F portfolio. P2 Capital Partners is also relatively very bullish on the stock, earmarking 9.26 percent of its 13F equity portfolio to PRMW.
Seeing as Primo Water Corporation (NYSE:PRMW) has witnessed bearish sentiment from the entirety of the hedge funds we track, it’s safe to say that there was a specific group of funds that slashed their full holdings in the second quarter. At the top of the heap, William Hyatt’s Hudson Way Capital Management cut the biggest position of the “upper crust” of funds followed by Insider Monkey, worth close to $6.1 million in stock, and David Rosen’s Rubric Capital Management was right behind this move, as the fund said goodbye to about $3.1 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 5 funds in the second quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Primo Water Corporation (NYSE:PRMW) but similarly valued. These stocks are Shake Shack Inc (NYSE:SHAK), New Fortress Energy Inc. (NASDAQ:NFE), Kennedy-Wilson Holdings Inc (NYSE:KW), Stepan Company (NYSE:SCL), Afya Limited (NASDAQ:AFYA), Kornit Digital Ltd. (NASDAQ:KRNT), and Dorman Products Inc. (NASDAQ:DORM). This group of stocks’ market values match PRMW’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SHAK | 22 | 458714 | 0 |
| NFE | 5 | 24818 | 3 |
| KW | 14 | 350773 | -8 |
| SCL | 15 | 51618 | 5 |
| AFYA | 6 | 48743 | -2 |
| KRNT | 9 | 56653 | 0 |
| DORM | 19 | 73124 | 5 |
| Average | 12.9 | 152063 | 0.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.9 hedge funds with bullish positions and the average amount invested in these stocks was $152 million. That figure was $625 million in PRMW’s case. Shake Shack Inc (NYSE:SHAK) is the most popular stock in this table. On the other hand New Fortress Energy Inc. (NASDAQ:NFE) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Primo Water Corporation (NYSE:PRMW) is more popular among hedge funds. Our overall hedge fund sentiment score for PRMW is 75.8. 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 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23.8% in 2020 through September 14th and still beat the market by 17.6 percentage points. Unfortunately PRMW wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on PRMW were disappointed as the stock returned 5.4% since the end of 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.
Follow Primo Water Corp (NYSE:PRMW)
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Disclosure: None. This article was originally published at Insider Monkey.
