Is Pzena Investment Management, Inc. (PZN) A Good Stock to Buy?

At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Third Point 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.

Pzena Investment Management, Inc. (NYSE:PZN) shareholders have witnessed an increase in hedge fund interest lately. There were 4 hedge funds in our database with PZN positions at the end of the second quarter, which jumped to 6 by the end of the third quarter. At the end of this article we will also compare PZN to other stocks including Strayer Education Inc (NASDAQ:STRA), Meta Financial Group Inc. (NASDAQ:CASH), and SunCoke Energy, Inc (NYSE:SXC) to get a better sense of its popularity.

We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.

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What have hedge funds been doing with Pzena Investment Management, Inc. (NYSE:PZN)?

At the end of the third quarter, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a 50% surge from the second quarter of 2016. By comparison, 4 hedge funds held shares or bullish call options in PZN heading into this year, with sentiment having been flat in the first-half of 2016. So, let’s see 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, Renaissance Technologies, one of the largest hedge funds in the world, holds the number one position in Pzena Investment Management, Inc. (NYSE:PZN). Renaissance Technologies has a $4.1 million position in the stock. Sitting at the No. 2 spot is GAMCO Investors, led by Mario Gabelli, which holds a $0.5 million position. Some other peers with similar optimism consist of John A. Levin’s Levin Capital Strategies, Israel Englander’s Millennium Management, and Ken Griffin’s Citadel Investment Group. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds, which is based on the performance of their 13F long positions in non-micro-cap stocks.

As aggregate interest increased, key hedge funds were leading the bulls’ herd. Millennium Management assembled the biggest position in Pzena Investment Management, Inc. (NYSE:PZN). Millennium Management had $0.1 million invested in the company at the end of the quarter. Citadel Investment Group also made a $0.1 million investment in the stock during the quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Pzena Investment Management, Inc. (NYSE:PZN) but similarly valued. We will take a look at Strayer Education Inc (NASDAQ:STRA), Meta Financial Group Inc. (NASDAQ:CASH), SunCoke Energy, Inc (NYSE:SXC), and InnerWorkings, Inc. (NASDAQ:INWK). This group of stocks’ market valuations are closest to PZN’s market valuation.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $89 million. That figure was just $5 million in PZN’s case. Meta Financial Group Inc. (NASDAQ:CASH) is the most popular stock in this table. On the other hand Strayer Education Inc (NASDAQ:STRA) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Pzena Investment Management, Inc. (NYSE:PZN) is even less popular than STRA. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock.

Disclosure: None