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 (read our latest 10 coronavirus predictions).
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 take a look at whether Packaging Corporation Of America (NYSE:PKG) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Packaging Corporation Of America (NYSE:PKG) has seen an increase in hedge fund sentiment in recent months. Our calculations also showed that PKG isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
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 monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Cliff Asness of AQR Capital Management
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 analyze the fresh hedge fund action regarding Packaging Corporation Of America (NYSE:PKG).
What have hedge funds been doing with Packaging Corporation Of America (NYSE:PKG)?
At the end of the fourth quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards PKG over the last 18 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
More specifically, AQR Capital Management was the largest shareholder of Packaging Corporation Of America (NYSE:PKG), with a stake worth $63.1 million reported as of the end of September. Trailing AQR Capital Management was Adage Capital Management, which amassed a stake valued at $11.9 million. Gotham Asset Management, GLG Partners, and Holocene Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Quantinno Capital allocated the biggest weight to Packaging Corporation Of America (NYSE:PKG), around 0.3% of its 13F portfolio. Gotham Asset Management is also relatively very bullish on the stock, dishing out 0.21 percent of its 13F equity portfolio to PKG.
Now, key money managers have jumped into Packaging Corporation Of America (NYSE:PKG) headfirst. Laurion Capital Management, managed by Benjamin A. Smith, created the most valuable position in Packaging Corporation Of America (NYSE:PKG). Laurion Capital Management had $0.7 million invested in the company at the end of the quarter. Peter Muller’s PDT Partners also initiated a $0.7 million position during the quarter. The other funds with brand new PKG positions are Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, Alec Litowitz and Ross Laser’s Magnetar Capital, and Ken Griffin’s Citadel Investment Group.
Let’s go over hedge fund activity in other stocks similar to Packaging Corporation Of America (NYSE:PKG). We will take a look at C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW), Insulet Corporation (NASDAQ:PODD), Regency Centers Corp (NYSE:REG), and PulteGroup, Inc. (NYSE:PHM). This group of stocks’ market values resemble PKG’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CHRW | 24 | 414912 | -2 |
| PODD | 34 | 731520 | -4 |
| REG | 16 | 139028 | -1 |
| PHM | 34 | 733761 | 3 |
| Average | 27 | 504805 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $505 million. That figure was $113 million in PKG’s case. Insulet Corporation (NASDAQ:PODD) is the most popular stock in this table. On the other hand Regency Centers Corp (NYSE:REG) is the least popular one with only 16 bullish hedge fund positions. Packaging Corporation Of America (NYSE:PKG) 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 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately PKG wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PKG investors were disappointed as the stock returned -27% 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.
Disclosure: None. This article was originally published at Insider Monkey.
