How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding PROS Holdings, Inc. (NYSE:PRO) and determine whether hedge funds had an edge regarding this stock.
PROS Holdings, Inc. (NYSE:PRO) investors should be aware of an increase in activity from the world’s largest hedge funds lately. PROS Holdings, Inc. (NYSE:PRO) was in 19 hedge funds’ portfolios at the end of June. The all time high for this statistics is 27. There were 16 hedge funds in our database with PRO positions at the end of the first quarter. Our calculations also showed that PRO isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: 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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 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.
Richard Driehaus of Driehaus Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let’s go over the latest hedge fund action regarding PROS Holdings, Inc. (NYSE:PRO).
How have hedgies been trading PROS Holdings, Inc. (NYSE:PRO)?
At Q2’s end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 19% from the previous quarter. On the other hand, there were a total of 16 hedge funds with a bullish position in PRO a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
The largest stake in PROS Holdings, Inc. (NYSE:PRO) was held by Tremblant Capital, which reported holding $104.7 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $33.9 million position. Other investors bullish on the company included Whetstone Capital Advisors, Two Sigma Advisors, and Driehaus Capital. In terms of the portfolio weights assigned to each position Akaris Global Partners allocated the biggest weight to PROS Holdings, Inc. (NYSE:PRO), around 10.44% of its 13F portfolio. Whetstone Capital Advisors is also relatively very bullish on the stock, earmarking 5.62 percent of its 13F equity portfolio to PRO.
As one would reasonably expect, some big names have jumped into PROS Holdings, Inc. (NYSE:PRO) headfirst. Driehaus Capital, managed by Richard Driehaus, established the biggest position in PROS Holdings, Inc. (NYSE:PRO). Driehaus Capital had $13.1 million invested in the company at the end of the quarter. Amish Mehta’s SQN Investors also initiated a $7.9 million position during the quarter. The other funds with brand new PRO positions are Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management, Michel Massoud’s Melqart Asset Management, and Ravee Mehta’s Nishkama Capital.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as PROS Holdings, Inc. (NYSE:PRO) but similarly valued. These stocks are AeroVironment, Inc. (NASDAQ:AVAV), Tri Pointe Group Inc (NYSE:TPH), Forma Therapeutics Holdings, Inc. (NASDAQ:FMTX), Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS), Visteon Corp (NYSE:VC), Ryman Hospitality Properties, Inc. (NYSE:RHP), and Masonite International Corp (NYSE:DOOR). This group of stocks’ market valuations are closest to PRO’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AVAV | 17 | 70334 | 7 |
| TPH | 31 | 239239 | 4 |
| FMTX | 11 | 906914 | 11 |
| KTOS | 22 | 48972 | 4 |
| VC | 23 | 235975 | 4 |
| RHP | 25 | 311365 | -1 |
| DOOR | 27 | 425530 | 1 |
| Average | 22.3 | 319761 | 4.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.3 hedge funds with bullish positions and the average amount invested in these stocks was $320 million. That figure was $232 million in PRO’s case. Tri Pointe Group Inc (NYSE:TPH) is the most popular stock in this table. On the other hand Forma Therapeutics Holdings, Inc. (NASDAQ:FMTX) is the least popular one with only 11 bullish hedge fund positions. PROS Holdings, Inc. (NYSE:PRO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for PRO is 49.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately PRO wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); PRO investors were disappointed as the stock returned -28.1% in 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Follow Pros Holdings Inc. (NASDAQ:PRO)
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Disclosure: None. This article was originally published at Insider Monkey.
