Is PriceSmart, Inc. (NASDAQ:PSMT) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
PriceSmart, Inc. (NASDAQ:PSMT) investors should be aware of a decrease in hedge fund interest in recent months. PSMT was in 9 hedge funds’ portfolios at the end of September. There were 15 hedge funds in our database with PSMT positions at the end of the previous quarter. Our calculations also showed that PSMT isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We’re going to take a peek at the fresh hedge fund action encompassing PriceSmart, Inc. (NASDAQ:PSMT).
What does smart money think about PriceSmart, Inc. (NASDAQ:PSMT)?
At the end of the third quarter, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of -40% from one quarter earlier. On the other hand, there were a total of 9 hedge funds with a bullish position in PSMT a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of PriceSmart, Inc. (NASDAQ:PSMT), with a stake worth $44.9 million reported as of the end of September. Trailing Renaissance Technologies was Winton Capital Management, which amassed a stake valued at $2.1 million. Citadel Investment Group, Holocene Advisors, and D E Shaw 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 Zebra Capital Management allocated the biggest weight to PriceSmart, Inc. (NASDAQ:PSMT), around 0.7% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, setting aside 0.19 percent of its 13F equity portfolio to PSMT.
Seeing as PriceSmart, Inc. (NASDAQ:PSMT) has witnessed a decline in interest from the aggregate hedge fund industry, it’s safe to say that there were a few fund managers that elected to cut their full holdings last quarter. Intriguingly, Ken Griffin’s Citadel Investment Group cut the largest investment of the 750 funds watched by Insider Monkey, comprising an estimated $12 million in stock. Israel Englander’s fund, Millennium Management, also sold off its stock, about $8.6 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 6 funds last quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as PriceSmart, Inc. (NASDAQ:PSMT) but similarly valued. These stocks are Northwest Natural Gas Co (NYSE:NWN), Tenable Holdings, Inc. (NASDAQ:TENB), Cactus, Inc. (NYSE:WHD), and Intercept Pharmaceuticals Inc (NASDAQ:ICPT). This group of stocks’ market values resemble PSMT’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NWN | 16 | 63875 | 4 |
| TENB | 18 | 135666 | 1 |
| WHD | 18 | 160038 | -6 |
| ICPT | 21 | 245421 | -3 |
| Average | 18.25 | 151250 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $151 million. That figure was $51 million in PSMT’s case. Intercept Pharmaceuticals Inc (NASDAQ:ICPT) is the most popular stock in this table. On the other hand Northwest Natural Gas Co (NYSE:NWN) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks PriceSmart, Inc. (NASDAQ:PSMT) is even less popular than NWN. Hedge funds dodged a bullet by taking a bearish stance towards PSMT. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately PSMT wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); PSMT investors were disappointed as the stock returned 5.1% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
