Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding PriceSmart, Inc. (NASDAQ:PSMT).
Is PriceSmart, Inc. (NASDAQ:PSMT) the right pick for your portfolio? Money managers are betting on the stock. The number of long hedge fund bets inched up by 8 recently. Our calculations also showed that PSMT isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Noam Gottesman of GLG Partners
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. 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 S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a peek at the fresh hedge fund action surrounding PriceSmart, Inc. (NASDAQ:PSMT).
How are hedge funds trading PriceSmart, Inc. (NASDAQ:PSMT)?
Heading into the first quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 80% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards PSMT over the last 18 quarters. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Renaissance Technologies, holds the number one position in PriceSmart, Inc. (NASDAQ:PSMT). Renaissance Technologies has a $34.2 million position in the stock, comprising less than 0.1%% of its 13F portfolio. On Renaissance Technologies’s heels is Winton Capital Management, led by David Harding, holding a $4.5 million position; 0.1% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors that hold long positions include Ken Griffin’s Citadel Investment Group, Israel Englander’s Millennium Management and Noam Gottesman’s GLG Partners. In terms of the portfolio weights assigned to each position Quantinno Capital allocated the biggest weight to PriceSmart, Inc. (NASDAQ:PSMT), around 0.18% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, setting aside 0.06 percent of its 13F equity portfolio to PSMT.
As one would reasonably expect, specific money managers have been driving this bullishness. Citadel Investment Group, managed by Ken Griffin, created the largest position in PriceSmart, Inc. (NASDAQ:PSMT). Citadel Investment Group had $3.9 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $1.7 million position during the quarter. The other funds with brand new PSMT positions are Noam Gottesman’s GLG Partners, Michael Gelband’s ExodusPoint Capital, and Karim Abbadi and Edward McBride’s Centiva Capital.
Let’s check out hedge fund activity in other stocks similar to PriceSmart, Inc. (NASDAQ:PSMT). These stocks are Aurinia Pharmaceuticals Inc (NASDAQ:AUPH), Tri Pointe Group Inc (NYSE:TPH), Evoqua Water Technologies Corp. (NYSE:AQUA), and BEST Inc. (NYSE:BEST). All of these stocks’ market caps are similar to PSMT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AUPH | 21 | 641333 | 8 |
| TPH | 32 | 319438 | 4 |
| AQUA | 21 | 170056 | 5 |
| BEST | 10 | 23819 | -4 |
| Average | 21 | 288662 | 3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $289 million. That figure was $51 million in PSMT’s case. Tri Pointe Group Inc (NYSE:TPH) is the most popular stock in this table. On the other hand BEST Inc. (NYSE:BEST) is the least popular one with only 10 bullish hedge fund positions. PriceSmart, Inc. (NASDAQ:PSMT) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately PSMT wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PSMT investors were disappointed as the stock returned -18.9% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
