Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 20% in 2019 (through September 30th). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of 24% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Perspecta Inc. (NYSE:PRSP).
Is Perspecta Inc. (NYSE:PRSP) a bargain? Money managers are turning bullish. The number of long hedge fund positions advanced by 6 recently. Our calculations also showed that PRSP 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.
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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
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. Let’s check out the recent hedge fund action encompassing Perspecta Inc. (NYSE:PRSP).
What have hedge funds been doing with Perspecta Inc. (NYSE:PRSP)?
At Q2’s end, a total of 40 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 18% from one quarter earlier. By comparison, 50 hedge funds held shares or bullish call options in PRSP a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
More specifically, Maverick Capital was the largest shareholder of Perspecta Inc. (NYSE:PRSP), with a stake worth $175.3 million reported as of the end of March. Trailing Maverick Capital was Dorsal Capital Management, which amassed a stake valued at $70.2 million. Freshford Capital Management, Sunriver Management, and Balyasny Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.
As industrywide interest jumped, specific money managers have jumped into Perspecta Inc. (NYSE:PRSP) headfirst. Crescent Park Management, managed by Eli Cohen, established the most outsized position in Perspecta Inc. (NYSE:PRSP). Crescent Park Management had $33.4 million invested in the company at the end of the quarter. Robert Pohly’s Samlyn Capital also made a $27.2 million investment in the stock during the quarter. The following funds were also among the new PRSP investors: Steven Richman’s East Side Capital (RR Partners), Didric Cederholm’s Lion Point, and Renaissance Technologies.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Perspecta Inc. (NYSE:PRSP) but similarly valued. These stocks are Azul S.A. (NYSE:AZUL), Embraer SA (NYSE:ERJ), Tandem Diabetes Care Inc (NASDAQ:TNDM), and Univar Solutions Inc. (NYSE:UNVR). This group of stocks’ market caps are closest to PRSP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AZUL | 13 | 173988 | 1 |
| ERJ | 7 | 50753 | -1 |
| TNDM | 33 | 485692 | 0 |
| UNVR | 31 | 1301531 | -11 |
| Average | 21 | 502991 | -2.75 |
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 $503 million. That figure was $776 million in PRSP’s case. Tandem Diabetes Care Inc (NASDAQ:TNDM) is the most popular stock in this table. On the other hand Embraer SA (NYSE:ERJ) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Perspecta Inc. (NYSE:PRSP) is more popular among hedge funds. 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. Hedge funds were also right about betting on PRSP as the stock returned 11.8% during Q3 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.
