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 Pool Corporation (NASDAQ:POOL) and determine whether hedge funds had an edge regarding this stock.
Hedge fund interest in Pool Corporation (NASDAQ:POOL) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that POOL isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings). At the end of this article we will also compare POOL to other stocks including Shinhan Financial Group Co., Ltd. (NYSE:SHG), Rollins, Inc. (NYSE:ROL), and Genuine Parts Company (NYSE:GPC) to get a better sense of its popularity.
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 we’re going to check out the latest hedge fund action encompassing Pool Corporation (NASDAQ:POOL).
Michael Gelband of ExodusPoint Capital
Do Hedge Funds Think POOL Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2021, a total of 40 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 36 hedge funds with a bullish position in POOL 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 substantially (or already accumulated large positions).
More specifically, Select Equity Group was the largest shareholder of Pool Corporation (NASDAQ:POOL), with a stake worth $385.6 million reported as of the end of September. Trailing Select Equity Group was Impax Asset Management, which amassed a stake valued at $120.8 million. Echo Street Capital Management, Fisher Asset Management, and Millennium Management 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 Aubrey Capital Management allocated the biggest weight to Pool Corporation (NASDAQ:POOL), around 2.26% of its 13F portfolio. Precept Capital Management is also relatively very bullish on the stock, setting aside 1.89 percent of its 13F equity portfolio to POOL.
Due to the fact that Pool Corporation (NASDAQ:POOL) has witnessed falling interest from hedge fund managers, it’s safe to say that there was a specific group of funds who sold off their entire stakes in the third quarter. Intriguingly, Steve Cohen’s Point72 Asset Management dropped the largest investment of all the hedgies monitored by Insider Monkey, comprising about $12.4 million in stock. Mark Coe’s fund, Intrinsic Edge Capital, also cut its stock, about $4.4 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Pool Corporation (NASDAQ:POOL) but similarly valued. We will take a look at Shinhan Financial Group Co., Ltd. (NYSE:SHG), Rollins, Inc. (NYSE:ROL), Genuine Parts Company (NYSE:GPC), Nuance Communications Inc. (NASDAQ:NUAN), CMS Energy Corporation (NYSE:CMS), Principal Financial Group Inc (NASDAQ:PFG), and Jacobs Engineering Group Inc. (NYSE:J). This group of stocks’ market valuations match POOL’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SHG | 6 | 31064 | 1 |
| ROL | 23 | 539369 | -7 |
| GPC | 28 | 469773 | -1 |
| NUAN | 61 | 4867945 | -11 |
| CMS | 25 | 415325 | -6 |
| PFG | 18 | 146441 | 0 |
| J | 20 | 955724 | -9 |
| Average | 25.9 | 1060806 | -4.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.9 hedge funds with bullish positions and the average amount invested in these stocks was $1061 million. That figure was $1136 million in POOL’s case. Nuance Communications Inc. (NASDAQ:NUAN) is the most popular stock in this table. On the other hand Shinhan Financial Group Co., Ltd. (NYSE:SHG) is the least popular one with only 6 bullish hedge fund positions. Pool Corporation (NASDAQ:POOL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for POOL is 65.2. 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. Hedge funds were also right about betting on POOL as the stock returned 9.8% since the end of Q3 (through 1/31) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
