Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Proto Labs Inc (NYSE:PRLB).
Hedge fund interest in Proto Labs Inc (NYSE:PRLB) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare PRLB to other stocks including SITE Centers Corp. (NYSE:SITC), Trinity Industries, Inc. (NYSE:TRN), and The Hain Celestial Group, Inc. (NASDAQ:HAIN) to get a better sense of its popularity.
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 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Paul Tudor Jones of Tudor Investment Corp
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a gander at the key hedge fund action encompassing Proto Labs Inc (NYSE:PRLB).
What does smart money think about Proto Labs Inc (NYSE:PRLB)?
At Q4’s end, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the third quarter of 2019. On the other hand, there were a total of 10 hedge funds with a bullish position in PRLB a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Millennium Management, managed by Israel Englander, holds the number one position in Proto Labs Inc (NYSE:PRLB). Millennium Management has a $13.4 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is Motley Fool Asset Management, managed by Bryan Hinmon, which holds a $5.6 million position; the fund has 0.6% of its 13F portfolio invested in the stock. Some other professional money managers that are bullish comprise Chuck Royce’s Royce & Associates, Paul Marshall and Ian Wace’s Marshall Wace LLP and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Motley Fool Asset Management allocated the biggest weight to Proto Labs Inc (NYSE:PRLB), around 0.6% of its 13F portfolio. Tudor Investment Corp is also relatively very bullish on the stock, earmarking 0.05 percent of its 13F equity portfolio to PRLB.
Judging by the fact that Proto Labs Inc (NYSE:PRLB) has experienced falling interest from hedge fund managers, it’s easy to see that there lies a certain “tier” of hedgies who sold off their positions entirely in the third quarter. It’s worth mentioning that Lee Ainslie’s Maverick Capital dumped the biggest investment of the “upper crust” of funds tracked by Insider Monkey, valued at about $0.9 million in stock, and Donald Sussman’s Paloma Partners was right behind this move, as the fund dropped about $0.5 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Proto Labs Inc (NYSE:PRLB) but similarly valued. We will take a look at SITE Centers Corp. (NYSE:SITC), Trinity Industries, Inc. (NYSE:TRN), The Hain Celestial Group, Inc. (NASDAQ:HAIN), and Cabot Corporation (NYSE:CBT). This group of stocks’ market caps are closest to PRLB’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SITC | 22 | 112447 | 8 |
| TRN | 27 | 860820 | 1 |
| HAIN | 17 | 708372 | -3 |
| CBT | 29 | 139643 | 8 |
| Average | 23.75 | 455321 | 3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $455 million. That figure was $33 million in PRLB’s case. Cabot Corporation (NYSE:CBT) is the most popular stock in this table. On the other hand The Hain Celestial Group, Inc. (NASDAQ:HAIN) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Proto Labs Inc (NYSE:PRLB) is even less popular than HAIN. Hedge funds dodged a bullet by taking a bearish stance towards PRLB. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but managed to beat the market by 4.2 percentage points. Unfortunately PRLB wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); PRLB investors were disappointed as the stock returned -23% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
