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2019 Review: Top Hedge Fund Stocks vs. Proofpoint Inc (PFPT)

Debasis Saha

Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ complex research processes to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space. Nevertheless, it is also possible to find underpriced large-cap stocks by following the hedge funds' moves. In this article, we look at what those funds think of Proofpoint Inc (NASDAQ:PFPT) based on that data.

Proofpoint Inc (NASDAQ:PFPT) has experienced an increase in activity from the world's largest hedge funds lately. PFPT was in 42 hedge funds' portfolios at the end of September. There were 36 hedge funds in our database with PFPT positions at the end of the previous quarter. Our calculations also showed that PFPT isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article 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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_26335" align="alignnone" width="600"] Ken Fisher of Fisher Asset Management[/caption]

Ken Fisher FISHER ASSET MANAGEMENT

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind we're going to take a glance at the recent hedge fund action surrounding Proofpoint Inc (NASDAQ:PFPT).

Hedge fund activity in Proofpoint Inc (NASDAQ:PFPT)

At the end of the third quarter, a total of 42 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from the second quarter of 2019. On the other hand, there were a total of 25 hedge funds with a bullish position in PFPT 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.

Is PFPT A Good Stock To Buy?

More specifically, Alkeon Capital Management was the largest shareholder of Proofpoint Inc (NASDAQ:PFPT), with a stake worth $102.1 million reported as of the end of September. Trailing Alkeon Capital Management was RGM Capital, which amassed a stake valued at $66.8 million. Tremblant Capital, Two Sigma Advisors, and Polar 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 RGM Capital allocated the biggest weight to Proofpoint Inc (NASDAQ:PFPT), around 4.45% of its 13F portfolio. Crosslink Capital is also relatively very bullish on the stock, designating 4.22 percent of its 13F equity portfolio to PFPT.

As industrywide interest jumped, specific money managers have been driving this bullishness. EMS Capital, managed by Edmond M. Safra, initiated the most valuable position in Proofpoint Inc (NASDAQ:PFPT). EMS Capital had $31.4 million invested in the company at the end of the quarter. Amish Mehta's SQN Investors also made a $29.3 million investment in the stock during the quarter. The following funds were also among the new PFPT investors: Ken Fisher's Fisher Asset Management, David Harding's Winton Capital Management, and Donald Sussman's Paloma Partners.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Proofpoint Inc (NASDAQ:PFPT) but similarly valued. We will take a look at Gildan Activewear Inc (NYSE:GIL), IPG Photonics Corporation (NASDAQ:IPGP), Lear Corporation (NYSE:LEA), and Cable One Inc (NYSE:CABO). This group of stocks' market caps are closest to PFPT's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GIL,19,348320,-5 IPGP,14,103750,-2 LEA,33,817858,2 CABO,13,495048,-2 Average,19.75,441244,-1.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $441 million. That figure was $637 million in PFPT's case. Lear Corporation (NYSE:LEA) is the most popular stock in this table. On the other hand Cable One Inc (NYSE:CABO) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Proofpoint Inc (NASDAQ:PFPT) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on PFPT, though not to the same extent, as the stock returned 38.7% during the same period and outperformed the market as well. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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