Is PFSI Stock A Buy or Sell?

We at Insider Monkey have gone over 887 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article, we look at what those funds think of PennyMac Financial Services Inc (NYSE:PFSI) based on that data.

Is PFSI stock a buy? The smart money was getting less optimistic. The number of bullish hedge fund bets dropped by 2 in recent months. PennyMac Financial Services Inc (NYSE:PFSI) was in 29 hedge funds’ portfolios at the end of December. The all time high for this statistic is 31. Our calculations also showed that PFSI isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 31 hedge funds in our database with PFSI positions at the end of the third quarter.

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 S&P 500 ETFs by 124 percentage points since March 2017 (see the details here).

Charles Clough of Clough Capital Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we heard that billionaire Peter Thiel is backing this biotech stock. So, we are taking a closer look at this space. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind let’s analyze the recent hedge fund action surrounding PennyMac Financial Services Inc (NYSE:PFSI).

Do Hedge Funds Think PFSI Is A Good Stock To Buy Now?

At the end of December, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the previous quarter. On the other hand, there were a total of 16 hedge funds with a bullish position in PFSI 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.

More specifically, Basswood Capital was the largest shareholder of PennyMac Financial Services Inc (NYSE:PFSI), with a stake worth $101.1 million reported as of the end of December. Trailing Basswood Capital was Rima Senvest Management, which amassed a stake valued at $88 million. Clough Capital Partners, Arrowstreet Capital, and PAR 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 Strycker View Capital allocated the biggest weight to PennyMac Financial Services Inc (NYSE:PFSI), around 7.14% of its 13F portfolio. Basswood Capital is also relatively very bullish on the stock, setting aside 6.27 percent of its 13F equity portfolio to PFSI.

Due to the fact that PennyMac Financial Services Inc (NYSE:PFSI) has experienced declining sentiment from hedge fund managers, it’s safe to say that there was a specific group of fund managers that decided to sell off their positions entirely last quarter. At the top of the heap, Ken Heebner’s Capital Growth Management dropped the largest stake of the “upper crust” of funds tracked by Insider Monkey, comprising an estimated $17.7 million in stock, and Ken Grossman and Glen Schneider’s SG Capital Management was right behind this move, as the fund said goodbye to about $6.5 million worth. These transactions are interesting, as total hedge fund interest was cut by 2 funds last quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as PennyMac Financial Services Inc (NYSE:PFSI) but similarly valued. We will take a look at Rexnord Corp (NYSE:RXN), Emergent Biosolutions Inc (NYSE:EBS), Popular Inc (NASDAQ:BPOP), Beam Therapeutics Inc. (NASDAQ:BEAM), Saia Inc (NASDAQ:SAIA), 51job, Inc. (NASDAQ:JOBS), and MSC Industrial Direct Co Inc (NYSE:MSM). All of these stocks’ market caps are similar to PFSI’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.7 hedge funds with bullish positions and the average amount invested in these stocks was $405 million. That figure was $536 million in PFSI’s case. Popular Inc (NASDAQ:BPOP) is the most popular stock in this table. On the other hand Beam Therapeutics Inc. (NASDAQ:BEAM) is the least popular one with only 14 bullish hedge fund positions. PennyMac Financial Services Inc (NYSE:PFSI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PFSI is 66.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.2% in 2021 through April 12th and beat the market again by 1.5 percentage points. Unfortunately PFSI wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on PFSI were disappointed as the stock returned -10.5% since the end of December (through 4/12) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

Disclosure: None. This article was originally published at Insider Monkey.