Is Pool Corporation (POOL) Going to Burn These Hedge Funds?

Is Pool Corporation (NASDAQ:POOL) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Is Pool Corporation (NASDAQ:POOL) an attractive investment today? Investors who are in the know were in a pessimistic mood. The number of long hedge fund positions decreased by 1 lately. Pool Corporation (NASDAQ:POOL) was in 40 hedge funds’ portfolios at the end of June. The all time high for this statistic is 41. Our calculations also showed that POOL isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 41 hedge funds in our database with POOL positions at the end of the first 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 79 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.

Richard Chilton of Chilton Investment Company

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now let’s review the new hedge fund action regarding Pool Corporation (NASDAQ:POOL).

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

At second quarter’s end, a total of 40 of the hedge funds tracked by Insider Monkey were long this stock, a change of -2% from one quarter earlier. By comparison, 35 hedge funds held shares or bullish call options in POOL a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Select Equity Group held the most valuable stake in Pool Corporation (NASDAQ:POOL), which was worth $404.3 million at the end of the second quarter. On the second spot was Fisher Asset Management which amassed $122.4 million worth of shares. Impax Asset Management, Echo Street Capital Management, and Chilton Investment Company 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 Aubrey Capital Management allocated the biggest weight to Pool Corporation (NASDAQ:POOL), around 2.2% of its 13F portfolio. Chilton Investment Company is also relatively very bullish on the stock, designating 1.94 percent of its 13F equity portfolio to POOL.

Since Pool Corporation (NASDAQ:POOL) has experienced falling interest from the smart money, it’s safe to say that there lies a certain “tier” of fund managers that decided to sell off their entire stakes heading into Q3. It’s worth mentioning that Paul Marshall and Ian Wace’s Marshall Wace LLP said goodbye to the biggest position of the “upper crust” of funds monitored by Insider Monkey, worth an estimated $79.4 million in stock, and Steven Boyd’s Armistice Capital was right behind this move, as the fund dropped about $12.7 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 1 funds heading into Q3.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Pool Corporation (NASDAQ:POOL) but similarly valued. These stocks are PagSeguro Digital Ltd. (NYSE:PAGS), Genuine Parts Company (NYSE:GPC), NetApp Inc. (NASDAQ:NTAP), Domino’s Pizza, Inc. (NYSE:DPZ), NVR, Inc. (NYSE:NVR), Healthpeak Properties, Inc. (NYSE:PEAK), and Bentley Systems, Incorporated (NASDAQ:BSY). This group of stocks’ market caps match POOL’s market cap.

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As you can see these stocks had an average of 28.3 hedge funds with bullish positions and the average amount invested in these stocks was $1005 million. That figure was $1026 million in POOL’s case. PagSeguro Digital Ltd. (NYSE:PAGS) is the most popular stock in this table. On the other hand Bentley Systems, Incorporated (NASDAQ:BSY) is the least popular one with only 17 bullish hedge fund positions. Pool Corporation (NASDAQ:POOL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for POOL is 83.3. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 21.8% in 2021 through October 11th and beat the market again by 4.4 percentage points. Unfortunately POOL wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on POOL were disappointed as the stock returned -2.7% since the end of June (through 10/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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