We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind let’s see whether Premier Inc (NASDAQ:PINC) represents a good buying opportunity at the moment. Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Is Premier Inc (NASDAQ:PINC) undervalued? Money managers are taking a pessimistic view. The number of bullish hedge fund bets dropped by 7 recently. Our calculations also showed that PINC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). PINC was in 14 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 21 hedge funds in our database with PINC holdings at the end of the previous 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Noam Gottesman of GLG Partners
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s view the latest hedge fund action regarding Premier Inc (NASDAQ:PINC).
How have hedgies been trading Premier Inc (NASDAQ:PINC)?
Heading into the first quarter of 2020, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -33% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards PINC over the last 18 quarters. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
The largest stake in Premier Inc (NASDAQ:PINC) was held by Renaissance Technologies, which reported holding $139.4 million worth of stock at the end of September. It was followed by GLG Partners with a $18.2 million position. Other investors bullish on the company included Millennium Management, East Side Capital (RR Partners), and Two Sigma Advisors. In terms of the portfolio weights assigned to each position East Side Capital (RR Partners) allocated the biggest weight to Premier Inc (NASDAQ:PINC), around 1.73% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, dishing out 0.11 percent of its 13F equity portfolio to PINC.
Since Premier Inc (NASDAQ:PINC) has witnessed a decline in interest from the aggregate hedge fund industry, we can see that there exists a select few funds who were dropping their full holdings heading into Q4. At the top of the heap, Michael Castor’s Sio Capital dumped the largest investment of the 750 funds followed by Insider Monkey, totaling close to $2 million in stock. Qing Li’s fund, Sciencast Management, also sold off its stock, about $1 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 7 funds heading into Q4.
Let’s now review hedge fund activity in other stocks similar to Premier Inc (NASDAQ:PINC). These stocks are Artisan Partners Asset Management Inc (NYSE:APAM), Box, Inc. (NYSE:BOX), Genesis Energy, L.P. (NYSE:GEL), and ABM Industries, Inc. (NYSE:ABM). This group of stocks’ market valuations are closest to PINC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| APAM | 16 | 265487 | 3 |
| BOX | 35 | 545303 | 2 |
| GEL | 1 | 17341 | -1 |
| ABM | 12 | 62128 | -2 |
| Average | 16 | 222565 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $223 million. That figure was $220 million in PINC’s case. Box, Inc. (NYSE:BOX) is the most popular stock in this table. On the other hand Genesis Energy, L.P. (NYSE:GEL) is the least popular one with only 1 bullish hedge fund positions. Premier Inc (NASDAQ:PINC) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately PINC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PINC investors were disappointed as the stock returned -25.4% during the same time period 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 most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
