Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren’t very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds’ top 20 stock picks easily bested the broader market, at 37.4% compared to 27.5%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn’t perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
Is PetIQ, Inc. (NASDAQ:PETQ) a sound investment today? Money managers are in an optimistic mood. The number of bullish hedge fund bets increased by 3 recently. Our calculations also showed that PETQ 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.
Why do we pay any attention at all to hedge fund sentiment? 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.
David Keidan of Buckingham Capital
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. Let’s check out the recent hedge fund action surrounding PetIQ, Inc. (NASDAQ:PETQ).
Hedge fund activity in PetIQ, Inc. (NASDAQ:PETQ)
At Q3’s end, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 23% from the previous quarter. On the other hand, there were a total of 22 hedge funds with a bullish position in PETQ a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Shannon River Fund Management held the most valuable stake in PetIQ, Inc. (NASDAQ:PETQ), which was worth $23.2 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $10.7 million worth of shares. D E Shaw, Intrinsic Edge Capital, and Buckingham Capital Management 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 Harvest Capital Strategies allocated the biggest weight to PetIQ, Inc. (NASDAQ:PETQ), around 4.07% of its 13F portfolio. Shannon River Fund Management is also relatively very bullish on the stock, earmarking 4.02 percent of its 13F equity portfolio to PETQ.
Consequently, key money managers have jumped into PetIQ, Inc. (NASDAQ:PETQ) headfirst. Citadel Investment Group, managed by Ken Griffin, assembled the most outsized position in PetIQ, Inc. (NASDAQ:PETQ). Citadel Investment Group had $7.8 million invested in the company at the end of the quarter. Joseph A. Jolson’s Harvest Capital Strategies also initiated a $3 million position during the quarter. The following funds were also among the new PETQ investors: Ira Unschuld’s Brant Point Investment Management, Vishal Saluja and Pham Quang’s Endurant Capital Management, and Paul Marshall and Ian Wace’s Marshall Wace.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as PetIQ, Inc. (NASDAQ:PETQ) but similarly valued. These stocks are Axonics Modulation Technologies, Inc. (NASDAQ:AXNX), Virtus Investment Partners Inc (NASDAQ:VRTS), Forestar Group Inc. (NYSE:FOR), and The Providence Service Corporation (NASDAQ:PRSC). This group of stocks’ market values are similar to PETQ’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AXNX | 11 | 93838 | -1 |
| VRTS | 16 | 94591 | -1 |
| FOR | 15 | 99738 | 11 |
| PRSC | 15 | 174593 | 1 |
| Average | 14.25 | 115690 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $116 million. That figure was $96 million in PETQ’s case. Virtus Investment Partners Inc (NASDAQ:VRTS) is the most popular stock in this table. On the other hand Axonics Modulation Technologies, Inc. (NASDAQ:AXNX) is the least popular one with only 11 bullish hedge fund positions. PetIQ, Inc. (NASDAQ:PETQ) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately PETQ wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on PETQ were disappointed as the stock returned -15.6% during the fourth quarter (through the end of November) 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.
Disclosure: None. This article was originally published at Insider Monkey.
