Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and a 20% drop in stock prices. Things completely reversed in 2019 and stock indices hit record highs. Recent hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Party City Holdco Inc (NYSE:PRTY) to find out whether it was one of their high conviction long-term ideas.
Hedge fund interest in Party City Holdco Inc (NYSE:PRTY) shares was flat at the end of last quarter. This is usually a negative indicator. 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 First Community Bancshares Inc (NASDAQ:FCBC), Organigram Holdings Inc. (NASDAQ:OGI), and Contura Energy, Inc. (NYSE:CTRA) to gather more data points. Our calculations also showed that PRTY isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Clifford Sosin of CAS Investment Partners
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a glance at the latest hedge fund action surrounding Party City Holdco Inc (NYSE:PRTY).
What does smart money think about Party City Holdco Inc (NYSE:PRTY)?
At Q3’s end, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 18 hedge funds with a bullish position in PRTY a year ago. With hedgies’ capital changing hands, there exists a few key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
More specifically, Nantahala Capital Management was the largest shareholder of Party City Holdco Inc (NYSE:PRTY), with a stake worth $34.4 million reported as of the end of September. Trailing Nantahala Capital Management was CAS Investment Partners, which amassed a stake valued at $19.6 million. Portolan Capital Management, Rubric Capital Management, and Clearline Capital 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 CAS Investment Partners allocated the biggest weight to Party City Holdco Inc (NYSE:PRTY), around 4.33% of its 13F portfolio. Clearline Capital is also relatively very bullish on the stock, designating 2.03 percent of its 13F equity portfolio to PRTY.
Because Party City Holdco Inc (NYSE:PRTY) has faced a decline in interest from hedge fund managers, it’s safe to say that there was a specific group of hedgies that decided to sell off their positions entirely in the third quarter. Interestingly, Chuck Royce’s Royce & Associates said goodbye to the largest investment of the “upper crust” of funds watched by Insider Monkey, valued at an estimated $4.4 million in stock. John Overdeck and David Siegel’s fund, Two Sigma Advisors, also sold off its stock, about $2.8 million worth. These moves are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Party City Holdco Inc (NYSE:PRTY) but similarly valued. These stocks are First Community Bancshares Inc (NASDAQ:FCBC), Organigram Holdings Inc. (NASDAQ:OGI), Contura Energy, Inc. (NYSE:CTRA), and Carbonite Inc (NASDAQ:CARB). This group of stocks’ market values match PRTY’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FCBC | 8 | 12241 | 5 |
| OGI | 6 | 2915 | 1 |
| CTRA | 21 | 201571 | -1 |
| CARB | 24 | 78036 | 5 |
| Average | 14.75 | 73691 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $74 million. That figure was $78 million in PRTY’s case. Carbonite Inc (NASDAQ:CARB) is the most popular stock in this table. On the other hand Organigram Holdings Inc. (NASDAQ:OGI) is the least popular one with only 6 bullish hedge fund positions. Party City Holdco Inc (NYSE:PRTY) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately PRTY wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PRTY investors were disappointed as the stock returned -66.2% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
