At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Tiger Global because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.
Primo Water Corporation (NASDAQ:PRMW) investors should pay attention to a decrease in hedge fund sentiment recently. Our calculations also showed that PRMW isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, 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. Let’s check out the fresh hedge fund action surrounding Primo Water Corporation (NASDAQ:PRMW).
What have hedge funds been doing with Primo Water Corporation (NASDAQ:PRMW)?
Heading into the third quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards PRMW over the last 16 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Ted White and Christopher Kiper’s Legion Partners Asset Management has the number one position in Primo Water Corporation (NASDAQ:PRMW), worth close to $39 million, corresponding to 9.6% of its total 13F portfolio. The second most bullish fund manager is Charles Akre of Akre Capital Management, with a $37.5 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Other professional money managers that hold long positions consist of Renaissance Technologies, Ken Grossman and Glen Schneider’s SG Capital Management and Chuck Royce’s Royce & Associates.
Since Primo Water Corporation (NASDAQ:PRMW) has faced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there were a few hedge funds that decided to sell off their entire stakes heading into Q3. Intriguingly, Richard Driehaus’s Driehaus Capital said goodbye to the largest investment of all the hedgies followed by Insider Monkey, valued at about $8.5 million in stock, and Joseph A. Jolson’s Harvest Capital Strategies was right behind this move, as the fund dropped about $1.6 million worth. These moves are important to note, as total hedge fund interest dropped by 1 funds heading into Q3.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Primo Water Corporation (NASDAQ:PRMW) but similarly valued. These stocks are Dorian LPG Ltd (NYSE:LPG), Akero Therapeutics, Inc. (NASDAQ:AKRO), Exterran Corporation (NYSE:EXTN), and The Hackett Group, Inc. (NASDAQ:HCKT). This group of stocks’ market caps match PRMW’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LPG | 10 | 101721 | 1 |
| AKRO | 15 | 74921 | 15 |
| EXTN | 14 | 66299 | -4 |
| HCKT | 15 | 77610 | 5 |
| Average | 13.5 | 80138 | 4.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $80 million. That figure was $109 million in PRMW’s case. Akero Therapeutics, Inc. (NASDAQ:AKRO) is the most popular stock in this table. On the other hand Dorian LPG Ltd (NYSE:LPG) is the least popular one with only 10 bullish hedge fund positions. Primo Water Corporation (NASDAQ:PRMW) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately PRMW wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PRMW investors were disappointed as the stock returned -0.2% 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.
