Was The Smart Money Right About Palo Alto Networks Inc (PANW)?

With the second-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the third quarter of 2021. One of these stocks was Palo Alto Networks Inc (NYSE:PANW).

Palo Alto Networks Inc (NYSE:PANW) investors should be aware of an increase in enthusiasm from smart money lately. Palo Alto Networks Inc (NYSE:PANW) was in 69 hedge funds’ portfolios at the end of June. The all time high for this statistic is 64. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 64 hedge funds in our database with PANW holdings at the end of March. Our calculations also showed that PANW isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

David Blood of Generation Investment Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, the demand for helium is soaring and there is a helium supply shortage, so we are checking out stock pitches like this emerging helium stock. 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. 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 homepage. Now we’re going to go over the new hedge fund action encompassing Palo Alto Networks Inc (NYSE:PANW).

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

At the end of June, a total of 69 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from the first quarter of 2020. On the other hand, there were a total of 51 hedge funds with a bullish position in PANW a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Among these funds, Viking Global held the most valuable stake in Palo Alto Networks Inc (NYSE:PANW), which was worth $979.7 million at the end of the second quarter. On the second spot was Generation Investment Management which amassed $675.1 million worth of shares. Renaissance Technologies, Citadel Investment Group, and Cadian Capital 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 Cadian Capital allocated the biggest weight to Palo Alto Networks Inc (NYSE:PANW), around 12.16% of its 13F portfolio. Crosslink Capital is also relatively very bullish on the stock, setting aside 10.24 percent of its 13F equity portfolio to PANW.

Now, key money managers were leading the bulls’ herd. Atalan Capital, managed by David Thomas, established the biggest position in Palo Alto Networks Inc (NYSE:PANW). Atalan Capital had $126.2 million invested in the company at the end of the quarter. Bruce Emery’s Greenvale Capital also made a $59.4 million investment in the stock during the quarter. The other funds with brand new PANW positions are Jeffrey Tannenbaum’s Fir Tree, Michael Hintze’s CQS Cayman LP, and Brian Ashford-Russell and Tim Woolley’s Polar Capital.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Palo Alto Networks Inc (NYSE:PANW) but similarly valued. These stocks are Mizuho Financial Group Inc. (NYSE:MFG), Suncor Energy Inc. (NYSE:SU), Discover Financial Services (NYSE:DFS), The Hershey Company (NYSE:HSY), ResMed Inc. (NYSE:RMD), XPeng Inc. (NYSE:XPEV), and Cummins Inc. (NYSE:CMI). This group of stocks’ market caps match PANW’s market cap.

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As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $732 million. That figure was $4721 million in PANW’s case. Cummins Inc. (NYSE:CMI) is the most popular stock in this table. On the other hand Mizuho Financial Group Inc. (NYSE:MFG) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Palo Alto Networks Inc (NYSE:PANW) is more popular among hedge funds. Our overall hedge fund sentiment score for PANW is 90. 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 returned 26.3% in 2021 through October 29th but still managed to beat the market by 2.3 percentage points. Hedge funds were also right about betting on PANW as the stock returned 37.2% since the end of June (through 10/29) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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