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 Palo Alto Networks Inc (NYSE:PANW) and determine whether hedge funds skillfully traded this stock.
Is Palo Alto Networks Inc (NYSE:PANW) a healthy stock for your portfolio? Money managers were becoming more confident. The number of long hedge fund bets inched up by 4 recently. Palo Alto Networks Inc (NYSE:PANW) was in 73 hedge funds’ portfolios at the end of September. The all time high for this statistic was previously 69. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that PANW isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).
Noam Gottesman of GLG Partners
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 check out the key hedge fund action encompassing Palo Alto Networks Inc (NYSE:PANW).
Do Hedge Funds Think PANW Is A Good Stock To Buy Now?
At third quarter’s end, a total of 73 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards PANW over the last 25 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
The largest stake in Palo Alto Networks Inc (NYSE:PANW) was held by Generation Investment Management, which reported holding $773.4 million worth of stock at the end of September. It was followed by Viking Global with a $610.1 million position. Other investors bullish on the company included Citadel Investment Group, Jericho Capital Asset Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Crosslink Capital allocated the biggest weight to Palo Alto Networks Inc (NYSE:PANW), around 13.82% of its 13F portfolio. Jericho Capital Asset Management is also relatively very bullish on the stock, designating 11.17 percent of its 13F equity portfolio to PANW.
Now, key money managers were leading the bulls’ herd. Jericho Capital Asset Management, managed by Josh Resnick, established the most valuable position in Palo Alto Networks Inc (NYSE:PANW). Jericho Capital Asset Management had $408.6 million invested in the company at the end of the quarter. Edmond M. Safra’s EMS Capital also made a $82.1 million investment in the stock during the quarter. The other funds with brand new PANW positions are Israel Englander’s Millennium Management, Chris Rokos’s Rokos Capital Management, and Michael Rockefeller and KarláKroeker’s Woodline Partners.
Let’s now take a look at hedge fund activity in other stocks similar to Palo Alto Networks Inc (NYSE:PANW). We will take a look at IHS Markit Ltd. (NASDAQ:INFO), Global Payments Inc (NYSE:GPN), IQVIA Holdings, Inc. (NYSE:IQV), Synopsys, Inc. (NASDAQ:SNPS), BCE Inc. (NYSE:BCE), eBay Inc (NASDAQ:EBAY), and Palantir Technologies Inc. (NYSE:PLTR). This group of stocks’ market valuations are closest to PANW’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| INFO | 64 | 6723219 | 3 |
| GPN | 68 | 3462603 | 2 |
| IQV | 66 | 3756655 | -3 |
| SNPS | 43 | 2343901 | 2 |
| BCE | 15 | 129110 | 1 |
| EBAY | 49 | 2097933 | 10 |
| PLTR | 35 | 1634776 | 9 |
| Average | 48.6 | 2878314 | 3.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 48.6 hedge funds with bullish positions and the average amount invested in these stocks was $2878 million. That figure was $5900 million in PANW’s case. Global Payments Inc (NYSE:GPN) is the most popular stock in this table. On the other hand BCE Inc. (NYSE:BCE) is the least popular one with only 15 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 89. 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 29.6% in 2021 and managed to beat the market by another 3.6 percentage points. Hedge funds were also right about betting on PANW as the stock returned 8% since the end of September (through 1/31) 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.
