We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Patterson Companies, Inc. (NASDAQ:PDCO).
Patterson Companies, Inc. (NASDAQ:PDCO) investors should be aware of an increase in hedge fund sentiment of late. PDCO was in 25 hedge funds’ portfolios at the end of December. There were 22 hedge funds in our database with PDCO positions at the end of the previous quarter. Our calculations also showed that PDCO isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
If you’d ask most investors, hedge funds are seen as unimportant, outdated investment tools of yesteryear. While there are over 8000 funds trading today, We hone in on the upper echelon of this group, around 850 funds. These money managers manage most of the smart money’s total capital, and by following their first-class stock picks, Insider Monkey has unsheathed a number of investment strategies that have historically exceeded the broader indices. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Jeffrey Bronchick of Cove Street Capital
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 analyze the fresh hedge fund action regarding Patterson Companies, Inc. (NASDAQ:PDCO).
What have hedge funds been doing with Patterson Companies, Inc. (NASDAQ:PDCO)?
At Q4’s end, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in PDCO over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Select Equity Group was the largest shareholder of Patterson Companies, Inc. (NASDAQ:PDCO), with a stake worth $47.5 million reported as of the end of September. Trailing Select Equity Group was GAMCO Investors, which amassed a stake valued at $33.5 million. Cove Street Capital, Citadel Investment Group, and Arrowstreet Capital 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 Cove Street Capital allocated the biggest weight to Patterson Companies, Inc. (NASDAQ:PDCO), around 2.17% of its 13F portfolio. Tavio Capital is also relatively very bullish on the stock, earmarking 1.94 percent of its 13F equity portfolio to PDCO.
As industrywide interest jumped, key hedge funds were leading the bulls’ herd. Winton Capital Management, managed by David Harding, created the largest position in Patterson Companies, Inc. (NASDAQ:PDCO). Winton Capital Management had $1.8 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also initiated a $1 million position during the quarter. The other funds with brand new PDCO positions are Roger Ibbotson’s Zebra Capital Management, Donald Sussman’s Paloma Partners, and Mika Toikka’s AlphaCrest Capital Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Patterson Companies, Inc. (NASDAQ:PDCO) but similarly valued. We will take a look at Apellis Pharmaceuticals, Inc. (NASDAQ:APLS), Karuna Therapeutics, Inc. (NASDAQ:KRTX), Great Western Bancorp Inc (NYSE:GWB), and Workiva Inc (NYSE:WK). All of these stocks’ market caps match PDCO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| APLS | 31 | 417192 | 7 |
| KRTX | 15 | 136671 | 6 |
| GWB | 17 | 47873 | 6 |
| WK | 17 | 135876 | -5 |
| Average | 20 | 184403 | 3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $184 million. That figure was $183 million in PDCO’s case. Apellis Pharmaceuticals, Inc. (NASDAQ:APLS) is the most popular stock in this table. On the other hand Karuna Therapeutics, Inc. (NASDAQ:KRTX) is the least popular one with only 15 bullish hedge fund positions. Patterson Companies, Inc. (NASDAQ:PDCO) 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. Our calculations showed that top 20 most popular stocks among hedge funds 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 beat the market by 4.2 percentage points. Unfortunately PDCO wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on PDCO were disappointed as the stock returned -35.3% 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 many of these stocks already outperformed the market so far this year.
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.
