We are still in an overall bull market and many stocks that smart money investors were piling into surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained more than 57% each. Hedge funds’ top 3 stock picks returned 44.6% this year and beat the S&P 500 ETFs by almost 14 percentage points. That’s a big deal. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is PRA Health Sciences Inc (NASDAQ:PRAH) a buy here? Investors who are in the know are buying. The number of bullish hedge fund positions improved by 6 lately. Our calculations also showed that PRAH isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Jeffrey Talpins of Element Capital
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind we’re going to view the recent hedge fund action regarding PRA Health Sciences Inc (NASDAQ:PRAH).
Hedge fund activity in PRA Health Sciences Inc (NASDAQ:PRAH)
At the end of the third quarter, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 24% from the second quarter of 2019. By comparison, 28 hedge funds held shares or bullish call options in PRAH 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.
The largest stake in PRA Health Sciences Inc (NASDAQ:PRAH) was held by Citadel Investment Group, which reported holding $118.2 million worth of stock at the end of September. It was followed by AQR Capital Management with a $110.4 million position. Other investors bullish on the company included Point72 Asset Management, Millennium Management, and Redmile Group. In terms of the portfolio weights assigned to each position Endurant Capital Management allocated the biggest weight to PRA Health Sciences Inc (NASDAQ:PRAH), around 3.74% of its 13F portfolio. Element Capital Management is also relatively very bullish on the stock, designating 3.1 percent of its 13F equity portfolio to PRAH.
Consequently, specific money managers were breaking ground themselves. Redmile Group, managed by Jeremy Green, initiated the largest position in PRA Health Sciences Inc (NASDAQ:PRAH). Redmile Group had $39.2 million invested in the company at the end of the quarter. Jeffrey Talpins’s Element Capital Management also made a $35.6 million investment in the stock during the quarter. The following funds were also among the new PRAH investors: Brian Ashford-Russell and Tim Woolley’s Polar Capital, Anand Parekh’s Alyeska Investment Group, and Brandon Haley’s Holocene Advisors.
Let’s go over hedge fund activity in other stocks similar to PRA Health Sciences Inc (NASDAQ:PRAH). These stocks are Arrow Electronics, Inc. (NYSE:ARW), Unum Group (NYSE:UNM), Knight-Swift Transportation Holdings Inc. (NYSE:KNX), and Zillow Group Inc (NASDAQ:Z). All of these stocks’ market caps are closest to PRAH’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ARW | 22 | 536478 | 5 |
| UNM | 23 | 474210 | -2 |
| KNX | 22 | 303434 | -1 |
| Z | 38 | 879845 | -13 |
| Average | 26.25 | 548492 | -2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.25 hedge funds with bullish positions and the average amount invested in these stocks was $548 million. That figure was $589 million in PRAH’s case. Zillow Group Inc (NASDAQ:Z) is the most popular stock in this table. On the other hand Arrow Electronics, Inc. (NYSE:ARW) is the least popular one with only 22 bullish hedge fund positions. PRA Health Sciences Inc (NASDAQ:PRAH) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately PRAH wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on PRAH were disappointed as the stock returned 20.5% in 2019 (through December 23rd) 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 many of these stocks already outperformed the market so far this year.
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.
