Was The Smart Money Right About PagSeguro Digital Ltd. (PAGS)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards PagSeguro Digital Ltd. (NYSE:PAGS) and determine whether hedge funds skillfully traded this stock.

Is PagSeguro Digital Ltd. (NYSE:PAGS) undervalued? The smart money was becoming hopeful. The number of bullish hedge fund positions improved by 1 in recent months. PagSeguro Digital Ltd. (NYSE:PAGS) was in 41 hedge funds’ portfolios at the end of September. The all time high for this statistic is 48. Our calculations also showed that PAGS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind let’s take a glance at the new hedge fund action surrounding PagSeguro Digital Ltd. (NYSE:PAGS).

Robert Pohly of Samlyn Capital

Do Hedge Funds Think PAGS Is A Good Stock To Buy Now?

At Q3’s end, a total of 41 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from the second quarter of 2021. On the other hand, there were a total of 24 hedge funds with a bullish position in PAGS a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Sylebra Capital Management, managed by Daniel Patrick Gibson, holds the biggest position in PagSeguro Digital Ltd. (NYSE:PAGS). Sylebra Capital Management has a $490.4 million position in the stock, comprising 11% of its 13F portfolio. The second largest stake is held by Gabriel Plotkin of Melvin Capital Management, with a $362 million call position; the fund has 1.8% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that hold long positions include Gabriel Plotkin’s Melvin Capital Management, Robert Pohly’s Samlyn Capital and Andrew Immerman and Jeremy Schiffman’s Palestra Capital Management. In terms of the portfolio weights assigned to each position Tekne Capital Management allocated the biggest weight to PagSeguro Digital Ltd. (NYSE:PAGS), around 27.33% of its 13F portfolio. Sylebra Capital Management is also relatively very bullish on the stock, setting aside 11.04 percent of its 13F equity portfolio to PAGS.

As industrywide interest jumped, key hedge funds were leading the bulls’ herd. LMR Partners, managed by Ben Levine, Andrew Manuel and Stefan Renold, initiated the most outsized position in PagSeguro Digital Ltd. (NYSE:PAGS). LMR Partners had $24.1 million invested in the company at the end of the quarter. Ricky Sandler’s Eminence Capital also made a $22.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Cyrus de Weck’s Portsea Asset Management, Anand Parekh’s Alyeska Investment Group, and Josh Donfeld and David Rogers’s Castle Hook Partners.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as PagSeguro Digital Ltd. (NYSE:PAGS) but similarly valued. These stocks are Continental Resources, Inc. (NYSE:CLR), Wheaton Precious Metals Corp. (NYSE:WPM), Boston Properties, Inc. (NYSE:BXP), ASE Technology Holding Co., Ltd. (NYSE:ASX), The Carlyle Group Inc (NASDAQ:CG), Ceridian HCM Holding Inc. (NYSE:CDAY), and Celanese Corporation (NYSE:CE). This group of stocks’ market values are similar to PAGS’s market value.

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As you can see these stocks had an average of 23.1 hedge funds with bullish positions and the average amount invested in these stocks was $885 million. That figure was $2447 million in PAGS’s case. The Carlyle Group Inc (NASDAQ:CG) is the most popular stock in this table. On the other hand ASE Technology Holding Co., Ltd. (NYSE:ASX) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks PagSeguro Digital Ltd. (NYSE:PAGS) is more popular among hedge funds. Our overall hedge fund sentiment score for PAGS is 81.6. 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. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and still beat the market by 3.6 percentage points. Unfortunately, PAGS wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on PAGS were disappointed as the stock returned -56.3% since the end of the third quarter (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.