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 Penn Virginia Corporation (NASDAQ:PVAC).
Penn Virginia Corporation (NASDAQ:PVAC) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 10 hedge funds’ portfolios at the end of June. Our calculations also showed that PVAC isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Vista Oil & Gas, S.A.B. de C.V. (NYSE:VIST), First Choice Bancorp (NASDAQ:FCBP), and IBEX Limited (NASDAQ:IBEX) to gather more data points.
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.
Noam Gottesman of GLG Partners
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. With all of this in mind we’re going to take a peek at the fresh hedge fund action surrounding Penn Virginia Corporation (NASDAQ:PVAC).
Do Hedge Funds Think PVAC Is A Good Stock To Buy Now?
At the end of the second quarter, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. By comparison, 11 hedge funds held shares or bullish call options in PVAC a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
The largest stake in Penn Virginia Corporation (NASDAQ:PVAC) was held by Two Sigma Advisors, which reported holding $4.5 million worth of stock at the end of June. It was followed by Arrowstreet Capital with a $4.2 million position. Other investors bullish on the company included D E Shaw, PEAK6 Capital Management, and ExodusPoint Capital. In terms of the portfolio weights assigned to each position PDT Partners allocated the biggest weight to Penn Virginia Corporation (NASDAQ:PVAC), around 0.03% of its 13F portfolio. ExodusPoint Capital is also relatively very bullish on the stock, designating 0.01 percent of its 13F equity portfolio to PVAC.
Judging by the fact that Penn Virginia Corporation (NASDAQ:PVAC) has witnessed declining sentiment from the aggregate hedge fund industry, it’s safe to say that there exists a select few fund managers that decided to sell off their entire stakes heading into Q3. It’s worth mentioning that Ari Zweiman’s 683 Capital Partners said goodbye to the largest stake of the “upper crust” of funds tracked by Insider Monkey, totaling an estimated $4.9 million in stock, and Marc Lasry’s Avenue Capital was right behind this move, as the fund dropped about $2.5 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks similar to Penn Virginia Corporation (NASDAQ:PVAC). These stocks are Vista Oil & Gas, S.A.B. de C.V. (NYSE:VIST), First Choice Bancorp (NASDAQ:FCBP), IBEX Limited (NASDAQ:IBEX), DSP Group, Inc. (NASDAQ:DSPG), Old Second Bancorp Inc. (NASDAQ:OSBC), NVE Corporation (NASDAQ:NVEC), and eGain Corporation (NASDAQ:EGAN). All of these stocks’ market caps resemble PVAC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VIST | 8 | 35265 | -1 |
| FCBP | 8 | 18273 | 4 |
| IBEX | 4 | 20013 | 1 |
| DSPG | 14 | 61411 | 1 |
| OSBC | 9 | 17514 | 2 |
| NVEC | 7 | 56067 | -1 |
| EGAN | 12 | 19427 | 4 |
| Average | 8.9 | 32567 | 1.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.9 hedge funds with bullish positions and the average amount invested in these stocks was $33 million. That figure was $15 million in PVAC’s case. DSP Group, Inc. (NASDAQ:DSPG) is the most popular stock in this table. On the other hand IBEX Limited (NASDAQ:IBEX) is the least popular one with only 4 bullish hedge fund positions. Penn Virginia Corporation (NASDAQ:PVAC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PVAC is 49.3. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 gained 25.7% in 2021 through September 27th and beat the market again by 6.2 percentage points. Unfortunately PVAC wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on PVAC were disappointed as the stock returned 1.1% since the end of June (through 9/27) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.
