In this article we are going to use hedge fund sentiment as a tool and determine whether Pinterest, Inc. (NYSE:PINS) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Pinterest, Inc. (NYSE:PINS) was in 80 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 53. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. PINS has experienced an increase in activity from the world’s largest hedge funds in recent months. There were 53 hedge funds in our database with PINS positions at the end of the second quarter. Our calculations also showed that PINS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: 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’ 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 66 percentage points since March 2017 (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.
Dan Loeb of Third Point
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets. Tesla’s stock price skyrocketed, yet lithium prices are still below their 2019 highs. So, we are checking out this lithium stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. 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. Keeping this in mind let’s take a look at the latest hedge fund action encompassing Pinterest, Inc. (NYSE:PINS).
How are hedge funds trading Pinterest, Inc. (NYSE:PINS)?
At the end of September, a total of 80 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 51% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards PINS over the last 21 quarters. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
The largest stake in Pinterest, Inc. (NYSE:PINS) was held by Melvin Capital Management, which reported holding $499 million worth of stock at the end of September. It was followed by Alkeon Capital Management with a $299.3 million position. Other investors bullish on the company included Select Equity Group, Whale Rock Capital Management, and Holocene Advisors. In terms of the portfolio weights assigned to each position Voleon Capital allocated the biggest weight to Pinterest, Inc. (NYSE:PINS), around 21.31% of its 13F portfolio. Empirical Capital Partners is also relatively very bullish on the stock, setting aside 20.14 percent of its 13F equity portfolio to PINS.
With a general bullishness amongst the heavyweights, some big names have been driving this bullishness. Alkeon Capital Management, managed by Panayotis Takis Sparaggis, initiated the biggest position in Pinterest, Inc. (NYSE:PINS). Alkeon Capital Management had $299.3 million invested in the company at the end of the quarter. Alex Sacerdote’s Whale Rock Capital Management also made a $265.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Dan Loeb’s Third Point, Michael Kharitonov and Jon David McAuliffe’s Voleon Capital, and D. E. Shaw’s D E Shaw.
Let’s go over hedge fund activity in other stocks similar to Pinterest, Inc. (NYSE:PINS). We will take a look at ResMed Inc. (NYSE:RMD), Tencent Music Entertainment Group (NYSE:TME), Aptiv PLC (NYSE:APTV), Fiat Chrysler Automobiles NV (NYSE:FCAU), Corning Incorporated (NYSE:GLW), Copart, Inc. (NASDAQ:CPRT), and RingCentral Inc (NYSE:RNG). This group of stocks’ market valuations resemble PINS’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RMD | 35 | 236573 | 10 |
| TME | 24 | 571503 | -6 |
| APTV | 38 | 1355332 | -5 |
| FCAU | 20 | 218304 | 0 |
| GLW | 36 | 346549 | 8 |
| CPRT | 56 | 1077546 | -4 |
| RNG | 59 | 3300948 | -3 |
| Average | 38.3 | 1015251 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 38.3 hedge funds with bullish positions and the average amount invested in these stocks was $1015 million. That figure was $3484 million in PINS’s case. RingCentral Inc (NYSE:RNG) is the most popular stock in this table. On the other hand Fiat Chrysler Automobiles NV (NYSE:FCAU) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Pinterest, Inc. (NYSE:PINS) is more popular among hedge funds. Our overall hedge fund sentiment score for PINS is 90. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks returned 30.7% in 2020 through November 27th but still managed to beat the market by 16.1 percentage points. Hedge funds were also right about betting on PINS as the stock returned 68% since the end of September (through 11/27) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.
