Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Plantronics, Inc. (NYSE:PLT) has seen a decrease in hedge fund sentiment of late. Our calculations also showed that PLT 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.
Ken Griffin of Citadel Investment Group
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We’re going to take a look at the fresh hedge fund action encompassing Plantronics, Inc. (NYSE:PLT).
What have hedge funds been doing with Plantronics, Inc. (NYSE:PLT)?
At Q3’s end, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -39% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards PLT over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Plantronics, Inc. (NYSE:PLT) was held by Greenhouse Funds, which reported holding $31.3 million worth of stock at the end of September. It was followed by Lakewood Capital Management with a $20.9 million position. Other investors bullish on the company included Citadel Investment Group, Lucha Capital Management, and GMT Capital. In terms of the portfolio weights assigned to each position Greenhouse Funds allocated the biggest weight to Plantronics, Inc. (NYSE:PLT), around 6.35% of its 13F portfolio. Lucha Capital Management is also relatively very bullish on the stock, earmarking 3.21 percent of its 13F equity portfolio to PLT.
Because Plantronics, Inc. (NYSE:PLT) has faced bearish sentiment from hedge fund managers, logic holds that there exists a select few fund managers who were dropping their full holdings last quarter. Intriguingly, Joe Milano’s Greenhouse Funds dumped the biggest position of all the hedgies watched by Insider Monkey, comprising about $7.4 million in stock. Michael O’Keefe’s fund, 12th Street Asset Management, also dumped its stock, about $7.4 million worth. These moves are interesting, as total hedge fund interest dropped by 7 funds last quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Plantronics, Inc. (NYSE:PLT) but similarly valued. We will take a look at Heron Therapeutics Inc (NASDAQ:HRTX), Gibraltar Industries Inc (NASDAQ:ROCK), Denali Therapeutics Inc. (NASDAQ:DNLI), and FBL Financial Group (NYSE:FFG). This group of stocks’ market caps are closest to PLT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HRTX | 15 | 372665 | -3 |
| ROCK | 18 | 118518 | 8 |
| DNLI | 7 | 14082 | -2 |
| FFG | 8 | 16754 | 1 |
| Average | 12 | 130505 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $131 million. That figure was $97 million in PLT’s case. Gibraltar Industries Inc (NASDAQ:ROCK) is the most popular stock in this table. On the other hand Denali Therapeutics Inc. (NASDAQ:DNLI) is the least popular one with only 7 bullish hedge fund positions. Plantronics, Inc. (NYSE:PLT) 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 PLT wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PLT investors were disappointed as the stock returned -31.7% 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.
