How do we determine whether Primo Water Corporation (NASDAQ:PRMW) makes for a good investment at the moment? We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
Primo Water Corporation (NASDAQ:PRMW) was in 16 hedge funds’ portfolios at the end of September. PRMW shareholders have witnessed a decrease in activity from the world’s largest hedge funds lately. There were 17 hedge funds in our database with PRMW positions at the end of the previous quarter. Our calculations also showed that PRMW isn’t among the 30 most popular stocks among hedge funds.
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 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s take a look at the latest hedge fund action encompassing Primo Water Corporation (NASDAQ:PRMW).
What have hedge funds been doing with Primo Water Corporation (NASDAQ:PRMW)?
Heading into the fourth quarter of 2018, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the second quarter of 2018. By comparison, 16 hedge funds held shares or bullish call options in PRMW heading into this year. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Akre Capital Management was the largest shareholder of Primo Water Corporation (NASDAQ:PRMW), with a stake worth $51.3 million reported as of the end of September. Trailing Akre Capital Management was Legion Partners Asset Management, which amassed a stake valued at $37.8 million. Renaissance Technologies, Manatuck Hill Partners, and Driehaus Capital were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that Primo Water Corporation (NASDAQ:PRMW) has witnessed bearish sentiment from the smart money, it’s easy to see that there lies a certain “tier” of funds who were dropping their entire stakes in the third quarter. At the top of the heap, Israel Englander’s Millennium Management sold off the biggest stake of the “upper crust” of funds followed by Insider Monkey, totaling close to $3 million in stock. Bradley LouisáRadoff’s fund, Fondren Management, also said goodbye to its stock, about $0.9 million worth. These transactions are important to note, as total hedge fund interest dropped by 1 funds in the third quarter.
Let’s now review hedge fund activity in other stocks similar to Primo Water Corporation (NASDAQ:PRMW). These stocks are Quantenna Communications, Inc. (NASDAQ:QTNA), Templeton Dragon Fund, Inc. (NYSE:TDF), Gamco Investors Inc. (NYSE:GBL), and Puxin Limited (NYSE:NEW). This group of stocks’ market valuations resemble PRMW’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| QTNA | 16 | 58592 | -1 |
| TDF | 1 | 242 | -3 |
| GBL | 9 | 11152 | 0 |
| NEW | 5 | 16439 | -3 |
| Average | 7.75 | 21606 | -1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.75 hedge funds with bullish positions and the average amount invested in these stocks was $22 million. That figure was $176 million in PRMW’s case. Quantenna Communications, Inc. (NASDAQ:QTNA) is the most popular stock in this table. On the other hand Templeton Dragon Fund, Inc. (NYSE:TDF) is the least popular one with only 1 bullish hedge fund positions. Primo Water Corporation (NASDAQ:PRMW) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard QTNA might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
