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 (read our latest 10 coronavirus predictions).
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 Insulet Corporation (NASDAQ:PODD).
Is Insulet Corporation (NASDAQ:PODD) a buy right now? Prominent investors are becoming less confident. The number of long hedge fund bets were cut by 4 lately. Our calculations also showed that PODD isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). PODD was in 34 hedge funds’ portfolios at the end of December. There were 38 hedge funds in our database with PODD positions at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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.
Jim Simons of Renaissance Technologies
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. With all of this in mind let’s analyze the key hedge fund action encompassing Insulet Corporation (NASDAQ:PODD).
What does smart money think about Insulet Corporation (NASDAQ:PODD)?
At Q4’s end, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in PODD over the last 18 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Philippe Laffont’s Coatue Management has the most valuable position in Insulet Corporation (NASDAQ:PODD), worth close to $274.7 million, comprising 2.2% of its total 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, which holds a $85.6 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining members of the smart money with similar optimism encompass John Overdeck and David Siegel’s Two Sigma Advisors, Kris Jenner, Gordon Bussard, Graham McPhail’s Rock Springs Capital Management and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Think Investments allocated the biggest weight to Insulet Corporation (NASDAQ:PODD), around 12.03% of its 13F portfolio. Coatue Management is also relatively very bullish on the stock, dishing out 2.19 percent of its 13F equity portfolio to PODD.
Because Insulet Corporation (NASDAQ:PODD) has witnessed a decline in interest from hedge fund managers, logic holds that there was a specific group of funds that decided to sell off their positions entirely by the end of the third quarter. It’s worth mentioning that Ken Griffin’s Citadel Investment Group dumped the biggest position of the 750 funds monitored by Insider Monkey, totaling about $51.7 million in stock, and D. E. Shaw’s D E Shaw was right behind this move, as the fund sold off about $33.4 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 4 funds by the end of the third quarter.
Let’s now review hedge fund activity in other stocks similar to Insulet Corporation (NASDAQ:PODD). We will take a look at Regency Centers Corp (NYSE:REG), PulteGroup, Inc. (NYSE:PHM), Bausch Health Companies (NYSE:BHC), and Weibo Corp (NASDAQ:WB). This group of stocks’ market valuations match PODD’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| REG | 16 | 139028 | -1 |
| PHM | 34 | 733761 | 3 |
| BHC | 31 | 2822011 | -2 |
| WB | 11 | 355355 | -4 |
| Average | 23 | 1012539 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $1013 million. That figure was $732 million in PODD’s case. PulteGroup, Inc. (NYSE:PHM) is the most popular stock in this table. On the other hand Weibo Corp (NASDAQ:WB) is the least popular one with only 11 bullish hedge fund positions. Insulet Corporation (NASDAQ:PODD) is not the most popular stock in this group but hedge fund interest is still above average. 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 still beat the market by 3.2 percentage points. Hedge funds were also right about betting on PODD as the stock returned -19.8% during the first quarter (through March 16th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
