Will the new coronavirus cause a recession in US in the next 6 months? On February 27th, we put the probability at 75% and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Prosperity Bancshares, Inc. (NYSE:PB).
Prosperity Bancshares, Inc. (NYSE:PB) investors should be aware of an increase in hedge fund sentiment in recent months. PB was in 22 hedge funds’ portfolios at the end of December. There were 18 hedge funds in our database with PB holdings at the end of the previous quarter. Our calculations also showed that PB 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).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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.
Dmitry Balyasny of Balyasny Asset Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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 let’s check out the fresh hedge fund action surrounding Prosperity Bancshares, Inc. (NYSE:PB).
Hedge fund activity in Prosperity Bancshares, Inc. (NYSE:PB)
At Q4’s end, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 22% from the previous quarter. On the other hand, there were a total of 9 hedge funds with a bullish position in PB a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Millennium Management held the most valuable stake in Prosperity Bancshares, Inc. (NYSE:PB), which was worth $35.7 million at the end of the third quarter. On the second spot was Balyasny Asset Management which amassed $33.5 million worth of shares. Fisher Asset Management, Paloma Partners, and Citadel Investment Group 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 Interval Partners allocated the biggest weight to Prosperity Bancshares, Inc. (NYSE:PB), around 0.52% of its 13F portfolio. Third Avenue Management is also relatively very bullish on the stock, designating 0.43 percent of its 13F equity portfolio to PB.
Consequently, some big names have been driving this bullishness. Millennium Management, managed by Israel Englander, initiated the biggest position in Prosperity Bancshares, Inc. (NYSE:PB). Millennium Management had $35.7 million invested in the company at the end of the quarter. Donald Sussman’s Paloma Partners also initiated a $20.4 million position during the quarter. The other funds with new positions in the stock are Michael Gelband’s ExodusPoint Capital, Minhua Zhang’s Weld Capital Management, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.
Let’s now take a look at hedge fund activity in other stocks similar to Prosperity Bancshares, Inc. (NYSE:PB). We will take a look at Ultrapar Participacoes SA (NYSE:UGP), Planet Fitness Inc (NYSE:PLNT), Old Republic International Corporation (NYSE:ORI), and The Medicines Company (NASDAQ:MDCO). This group of stocks’ market valuations match PB’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| UGP | 5 | 70272 | 0 |
| PLNT | 34 | 837711 | -3 |
| ORI | 20 | 344967 | 3 |
| MDCO | 60 | 2420538 | 26 |
| Average | 29.75 | 918372 | 6.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.75 hedge funds with bullish positions and the average amount invested in these stocks was $918 million. That figure was $180 million in PB’s case. The Medicines Company (NASDAQ:MDCO) is the most popular stock in this table. On the other hand Ultrapar Participacoes SA (NYSE:UGP) is the least popular one with only 5 bullish hedge fund positions. Prosperity Bancshares, Inc. (NYSE:PB) 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 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately PB wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PB investors were disappointed as the stock returned -29.5% 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 Q1.
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.
