Were Hedge Funds Right About Pinterest, Inc. (PINS)?

In this article you are going to find out whether hedge funds think Pinterest, Inc. (NYSE:PINS) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is Pinterest, Inc. (NYSE:PINS) a safe investment right now? The smart money was becoming less hopeful. The number of long hedge fund positions dropped by 20 lately. Pinterest, Inc. (NYSE:PINS) was in 63 hedge funds’ portfolios at the end of June. The all time high for this statistic is 95. Our calculations also showed that PINS 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. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 79 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Ricky Sandler of Eminence Capital

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. Keeping this in mind we’re going to go over the new hedge fund action surrounding Pinterest, Inc. (NYSE:PINS).

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

At the end of the second quarter, a total of 63 of the hedge funds tracked by Insider Monkey were long this stock, a change of -24% from the first quarter of 2020. By comparison, 53 hedge funds held shares or bullish call options in PINS a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Panayotis Takis Sparaggis’s Alkeon Capital Management has the most valuable position in Pinterest, Inc. (NYSE:PINS), worth close to $356.7 million, accounting for 0.5% of its total 13F portfolio. Sitting at the No. 2 spot is Philippe Laffont of Coatue Management, with a $294 million position; 1.2% of its 13F portfolio is allocated to the company. Some other professional money managers that are bullish encompass Ken Griffin’s Citadel Investment Group, Robert M. P. Luciano’s VGI Partners and Amish Mehta’s SQN Investors. In terms of the portfolio weights assigned to each position Half Sky Capital allocated the biggest weight to Pinterest, Inc. (NYSE:PINS), around 37.24% of its 13F portfolio. Empirical Capital Partners is also relatively very bullish on the stock, designating 15.32 percent of its 13F equity portfolio to PINS.

Since Pinterest, Inc. (NYSE:PINS) has experienced bearish sentiment from the smart money, it’s easy to see that there was a specific group of money managers who were dropping their positions entirely heading into Q3. Intriguingly, Gabriel Plotkin’s Melvin Capital Management dropped the largest investment of all the hedgies tracked by Insider Monkey, worth close to $310.9 million in stock, and Aaron Cowen’s Suvretta Capital Management was right behind this move, as the fund cut about $104.5 million worth. These moves are important to note, as aggregate hedge fund interest fell by 20 funds heading into Q3.

Let’s now review hedge fund activity in other stocks similar to Pinterest, Inc. (NYSE:PINS). These stocks are Keurig Dr Pepper Inc. (NASDAQ:KDP), The Kraft Heinz Company (NASDAQ:KHC), Prudential Public Limited Company (NYSE:PUK), Southern Copper Corporation (NYSE:SCCO), KLA Corporation (NASDAQ:KLAC), America Movil SAB de CV (NYSE:AMX), and América Móvil, S.A.B. de C.V. (NYSE:AMOV). This group of stocks’ market valuations match PINS’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $2404 million. That figure was $2915 million in PINS’s case. KLA Corporation (NASDAQ:KLAC) is the most popular stock in this table. On the other hand América Móvil, S.A.B. de C.V. (NYSE:AMOV) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Pinterest, Inc. (NYSE:PINS) is more popular among hedge funds. Our overall hedge fund sentiment score for PINS is 54.9. 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 26.3% in 2021 through October 29th and still beat the market by 2.3 percentage points. Unfortunately PINS wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on PINS were disappointed as the stock returned -43.5% since the end of the second quarter (through 10/29) 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 most of these stocks already outperformed the market since 2019.

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

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