At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Tiger Global because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.
Parsons Corporation (NYSE:PSN) has seen an increase in support from the world’s most elite money managers lately. PSN was in 15 hedge funds’ portfolios at the end of June. There were 0 hedge funds in our database with PSN positions at the end of the previous quarter. Our calculations also showed that PSN isn’t among the 30 most popular stocks among hedge funds (view the video below).
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’ 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to review the key hedge fund action encompassing Parsons Corporation (NYSE:PSN).
What have hedge funds been doing with Parsons Corporation (NYSE:PSN)?
Heading into the third quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 15 from one quarter earlier. On the other hand, there were a total of 0 hedge funds with a bullish position in PSN a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Parsons Corporation (NYSE:PSN) was held by ValueAct Capital, which reported holding $66.5 million worth of stock at the end of March. It was followed by Alkeon Capital Management with a $31.3 million position. Other investors bullish on the company included Sunriver Management, Element Capital Management, and Third Point.
Consequently, specific money managers were breaking ground themselves. ValueAct Capital, managed by Jeffrey Ubben, created the biggest position in Parsons Corporation (NYSE:PSN). ValueAct Capital had $66.5 million invested in the company at the end of the quarter. Panayotis Takis Sparaggis’s Alkeon Capital Management also initiated a $31.3 million position during the quarter. The other funds with new positions in the stock are Will Cook’s Sunriver Management, Jeffrey Talpins’s Element Capital Management, and Dan Loeb’s Third Point.
Let’s now take a look at hedge fund activity in other stocks similar to Parsons Corporation (NYSE:PSN). We will take a look at BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ), Omnicell, Inc. (NASDAQ:OMCL), Laureate Education, Inc. (NASDAQ:LAUR), and Valley National Bancorp (NASDAQ:VLY). This group of stocks’ market valuations resemble PSN’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BJ | 33 | 437524 | 11 |
| OMCL | 18 | 96471 | 3 |
| LAUR | 23 | 427225 | 2 |
| VLY | 11 | 10337 | 0 |
| Average | 21.25 | 242889 | 4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $243 million. That figure was $169 million in PSN’s case. BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ) is the most popular stock in this table. On the other hand Valley National Bancorp (NASDAQ:VLY) is the least popular one with only 11 bullish hedge fund positions. Parsons Corporation (NYSE:PSN) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately PSN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PSN investors were disappointed as the stock returned -10.5% during the third 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
