Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 26% in 2019 (through November 22nd). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of nearly 35% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Primo Water Corporation (NASDAQ:PRMW).
Primo Water Corporation (NASDAQ:PRMW) was in 17 hedge funds’ portfolios at the end of the third quarter of 2019. PRMW has seen an increase in enthusiasm from smart money lately. There were 12 hedge funds in our database with PRMW positions at the end of the previous quarter. Our calculations also showed that PRMW 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.
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 has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Paul Marshall of Marshall Wace
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a peek at the recent hedge fund action regarding Primo Water Corporation (NASDAQ:PRMW).
How are hedge funds trading Primo Water Corporation (NASDAQ:PRMW)?
Heading into the fourth quarter of 2019, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 42% from one quarter earlier. On the other hand, there were a total of 16 hedge funds with a bullish position in PRMW a year ago. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
The largest stake in Primo Water Corporation (NASDAQ:PRMW) was held by Legion Partners Asset Management, which reported holding $43.8 million worth of stock at the end of September. It was followed by Akre Capital Management with a $37.5 million position. Other investors bullish on the company included Renaissance Technologies, Manatuck Hill Partners, and SG Capital Management. In terms of the portfolio weights assigned to each position Legion Partners Asset Management allocated the biggest weight to Primo Water Corporation (NASDAQ:PRMW), around 10.75% of its 13F portfolio. Manatuck Hill Partners is also relatively very bullish on the stock, earmarking 2.02 percent of its 13F equity portfolio to PRMW.
With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Marshall Wace, managed by Paul Marshall and Ian Wace, assembled the biggest position in Primo Water Corporation (NASDAQ:PRMW). Marshall Wace had $1.3 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also initiated a $0.7 million position during the quarter. The following funds were also among the new PRMW investors: Mark Coe’s Intrinsic Edge Capital, Israel Englander’s Millennium Management, and Matthew Hulsizer’s PEAK6 Capital Management.
Let’s go over hedge fund activity in other stocks similar to Primo Water Corporation (NASDAQ:PRMW). We will take a look at REX American Resources Corp (NYSE:REX), Paysign, Inc. (NASDAQ:PAYS), Independent Bank Corporation (NASDAQ:IBCP), and Akorn, Inc. (NASDAQ:AKRX). This group of stocks’ market values are closest to PRMW’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| REX | 8 | 43699 | 0 |
| PAYS | 11 | 30078 | 3 |
| IBCP | 13 | 49879 | 2 |
| AKRX | 15 | 83377 | 1 |
| Average | 11.75 | 51758 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $52 million. That figure was $107 million in PRMW’s case. Akorn, Inc. (NASDAQ:AKRX) is the most popular stock in this table. On the other hand REX American Resources Corp (NYSE:REX) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Primo Water Corporation (NASDAQ:PRMW) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately PRMW wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on PRMW were disappointed as the stock returned -16.9% during the first two months of the fourth 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 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
