Hedge fund managers like David Einhorn, Bill Ackman, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: POSCO (NYSE:PKX).
Is POSCO (NYSE:PKX) worth your attention right now? Money managers are in an optimistic mood. The number of long hedge fund positions advanced by 1 recently. Our calculations also showed that PKX isn’t among the 30 most popular stocks among hedge funds (view the video below).
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 market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a look at the recent hedge fund action regarding POSCO (NYSE:PKX).
Hedge fund activity in POSCO (NYSE:PKX)
Heading into the third quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 9% from the previous quarter. By comparison, 14 hedge funds held shares or bullish call options in PKX 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.
The largest stake in POSCO (NYSE:PKX) was held by Arrowstreet Capital, which reported holding $28.6 million worth of stock at the end of March. It was followed by Millennium Management with a $8.7 million position. Other investors bullish on the company included Pzena Investment Management, D E Shaw, and Chou Associates Management.
As aggregate interest increased, some big names were leading the bulls’ herd. Indus Capital, managed by David Kowitz and Sheldon Kasowitz, established the most outsized position in POSCO (NYSE:PKX). Indus Capital had $0.7 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also initiated a $0.3 million position during the quarter. The other funds with brand new PKX positions are Mike Vranos’s Ellington and Matthew Hulsizer’s PEAK6 Capital Management.
Let’s check out hedge fund activity in other stocks similar to POSCO (NYSE:PKX). We will take a look at Credicorp Ltd. (NYSE:BAP), Slack Technologies Inc (NYSE:WORK), Omnicom Group Inc. (NYSE:OMC), and Grifols SA (NASDAQ:GRFS). This group of stocks’ market caps are closest to PKX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BAP | 20 | 758937 | 0 |
| WORK | 37 | 818197 | 37 |
| OMC | 23 | 656047 | 3 |
| GRFS | 16 | 265646 | 2 |
| Average | 24 | 624707 | 10.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $625 million. That figure was $55 million in PKX’s case. Slack Technologies Inc (NYSE:WORK) is the most popular stock in this table. On the other hand Grifols SA (NASDAQ:GRFS) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks POSCO (NYSE:PKX) is even less popular than GRFS. Hedge funds dodged a bullet by taking a bearish stance towards PKX. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately PKX wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); PKX investors were disappointed as the stock returned -11.1% during the third 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
