How do you pick the next stock to invest in? One way would be to spend hours 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) has experienced a decrease in activity from the world’s largest hedge funds recently. Our calculations also showed that pvac isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 32 percentage points since May 2014 through March 12, 2019 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let’s check out the fresh hedge fund action surrounding Penn Virginia Corporation (NASDAQ:PVAC).
How have hedgies been trading Penn Virginia Corporation (NASDAQ:PVAC)?
At the end of the fourth quarter, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of -24% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in PVAC over the last 14 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Mangrove Partners was the largest shareholder of Penn Virginia Corporation (NASDAQ:PVAC), with a stake worth $91.8 million reported as of the end of December. Trailing Mangrove Partners was Strategic Value Partners, which amassed a stake valued at $83.3 million. Contrarian Capital, Encompass Capital Advisors, and Alpine Associates were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that Penn Virginia Corporation (NASDAQ:PVAC) has witnessed a decline in interest from the smart money, it’s safe to say that there was a specific group of hedge funds who were dropping their positions entirely in the third quarter. Interestingly, Edward A. Mule’s Silver Point Capital dropped the biggest stake of the 700 funds watched by Insider Monkey, valued at about $23.4 million in stock, and Wayne Cooperman’s Cobalt Capital Management was right behind this move, as the fund dumped about $16.3 million worth. These moves are interesting, as total hedge fund interest was cut by 5 funds in the third quarter.
Let’s now review hedge fund activity in other stocks similar to Penn Virginia Corporation (NASDAQ:PVAC). These stocks are Douglas Dynamics Inc (NYSE:PLOW), Knoll Inc (NYSE:KNL), Entercom Communications Corp. (NYSE:ETM), and PlayAGS, Inc. (NYSE:AGS). All of these stocks’ market caps are closest to PVAC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PLOW | 7 | 7515 | 1 |
| KNL | 22 | 60960 | 8 |
| ETM | 16 | 120292 | 2 |
| AGS | 11 | 71998 | -4 |
| Average | 14 | 65191 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $65 million. That figure was $274 million in PVAC’s case. Knoll Inc (NYSE:KNL) is the most popular stock in this table. On the other hand Douglas Dynamics Inc (NYSE:PLOW) is the least popular one with only 7 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. 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately PVAC wasn’t nearly as popular as these 15 stock and hedge funds that were betting on PVAC were disappointed as the stock returned -18.9% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.
