In this article you are going to find out whether hedge funds think Palo Alto Networks Inc (NYSE:PANW) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Is Palo Alto Networks Inc (NYSE:PANW) going to take off soon? Money managers were buying. The number of long hedge fund bets rose by 5 recently. Palo Alto Networks Inc (NYSE:PANW) was in 69 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 64. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that PANW isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 64 hedge funds in our database with PANW positions at the end of the first quarter.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let’s go over the fresh hedge fund action regarding Palo Alto Networks Inc (NYSE:PANW).
Do Hedge Funds Think PANW Is A Good Stock To Buy Now?
At the end of the second quarter, a total of 69 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards PANW over the last 24 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Viking Global held the most valuable stake in Palo Alto Networks Inc (NYSE:PANW), which was worth $979.7 million at the end of the second quarter. On the second spot was Generation Investment Management which amassed $675.1 million worth of shares. Renaissance Technologies, Citadel Investment Group, and Cadian 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 Cadian Capital allocated the biggest weight to Palo Alto Networks Inc (NYSE:PANW), around 12.16% of its 13F portfolio. Crosslink Capital is also relatively very bullish on the stock, setting aside 10.24 percent of its 13F equity portfolio to PANW.
As industrywide interest jumped, key hedge funds have been driving this bullishness. Atalan Capital, managed by David Thomas, initiated the most outsized position in Palo Alto Networks Inc (NYSE:PANW). Atalan Capital had $126.2 million invested in the company at the end of the quarter. Bruce Emery’s Greenvale Capital also made a $59.4 million investment in the stock during the quarter. The following funds were also among the new PANW investors: Jeffrey Tannenbaum’s Fir Tree, Michael Hintze’s CQS Cayman LP, and Brian Ashford-Russell and Tim Woolley’s Polar Capital.
Let’s now review hedge fund activity in other stocks similar to Palo Alto Networks Inc (NYSE:PANW). We will take a look at Mizuho Financial Group Inc. (NYSE:MFG), Suncor Energy Inc. (NYSE:SU), Discover Financial Services (NYSE:DFS), The Hershey Company (NYSE:HSY), ResMed Inc. (NYSE:RMD), XPeng Inc. (NYSE:XPEV), and Cummins Inc. (NYSE:CMI). This group of stocks’ market valuations are closest to PANW’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MFG | 6 | 15041 | 1 |
| SU | 32 | 1115960 | -1 |
| DFS | 37 | 450985 | -8 |
| HSY | 38 | 1229056 | -4 |
| RMD | 26 | 428212 | 1 |
| XPEV | 19 | 784609 | 0 |
| CMI | 45 | 1102223 | 8 |
| Average | 29 | 732298 | -0.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $732 million. That figure was $4721 million in PANW’s case. Cummins Inc. (NYSE:CMI) is the most popular stock in this table. On the other hand Mizuho Financial Group Inc. (NYSE:MFG) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Palo Alto Networks Inc (NYSE:PANW) is more popular among hedge funds. Our overall hedge fund sentiment score for PANW is 90. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks returned 25.7% in 2021 through September 27th but still managed to beat the market by 6.2 percentage points. Hedge funds were also right about betting on PANW as the stock returned 31% since the end of June (through 9/27) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.
