In this article we will take a look at whether hedge funds think Packaging Corporation Of America (NYSE:PKG) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Packaging Corporation Of America (NYSE:PKG) was in 23 hedge funds’ portfolios at the end of March. PKG investors should pay attention to an increase in support from the world’s most elite money managers recently. There were 18 hedge funds in our database with PKG positions at the end of the previous quarter. Our calculations also showed that PKG 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Joel Greenblatt of Gotham Asset Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s review the new hedge fund action regarding Packaging Corporation Of America (NYSE:PKG).
What have hedge funds been doing with Packaging Corporation Of America (NYSE:PKG)?
Heading into the second quarter of 2020, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 28% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards PKG over the last 18 quarters. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
More specifically, AQR Capital Management was the largest shareholder of Packaging Corporation Of America (NYSE:PKG), with a stake worth $45.2 million reported as of the end of September. Trailing AQR Capital Management was Marshall Wace LLP, which amassed a stake valued at $18.7 million. Balyasny Asset Management, Adage Capital Management, and Gotham Asset Management 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 Appian Way Asset Management allocated the biggest weight to Packaging Corporation Of America (NYSE:PKG), around 2.24% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, earmarking 0.37 percent of its 13F equity portfolio to PKG.
As aggregate interest increased, key hedge funds have been driving this bullishness. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, initiated the most outsized position in Packaging Corporation Of America (NYSE:PKG). Marshall Wace LLP had $18.7 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $13.6 million position during the quarter. The other funds with new positions in the stock are Andrew Byington’s Appian Way Asset Management, Israel Englander’s Millennium Management, and D. E. Shaw’s D E Shaw.
Let’s check out hedge fund activity in other stocks similar to Packaging Corporation Of America (NYSE:PKG). These stocks are Graco Inc. (NYSE:GGG), Carnival plc (NYSE:CUK), Banco de Chile (NYSE:BCH), and Catalent Inc (NYSE:CTLT). This group of stocks’ market valuations resemble PKG’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GGG | 21 | 157995 | 0 |
| CUK | 9 | 41281 | -5 |
| BCH | 4 | 34819 | -6 |
| CTLT | 27 | 384560 | 6 |
| Average | 15.25 | 154664 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $155 million. That figure was $106 million in PKG’s case. Catalent Inc (NYSE:CTLT) is the most popular stock in this table. On the other hand Banco de Chile (NYSE:BCH) is the least popular one with only 4 bullish hedge fund positions. Packaging Corporation Of America (NYSE:PKG) 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 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 13.9% in 2020 through June 10th but beat the market by 14.2 percentage points. Unfortunately PKG wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on PKG were disappointed as the stock returned 21.3% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.
