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 Photronics, Inc. (NASDAQ:PLAB) and determine whether hedge funds had an edge regarding this stock.
Is Photronics, Inc. (NASDAQ:PLAB) an excellent stock to buy now? Investors who are in the know were reducing their bets on the stock. The number of long hedge fund bets fell by 1 lately. Photronics, Inc. (NASDAQ:PLAB) was in 21 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 22. Our calculations also showed that PLAB isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
In the eyes of most stock holders, hedge funds are assumed to be unimportant, old financial vehicles of years past. While there are greater than 8000 funds in operation today, Our experts look at the upper echelon of this club, around 850 funds. These investment experts command the lion's share of the smart money's total asset base, and by watching their unrivaled equity investments, Insider Monkey has spotted a number of investment strategies that have historically outpaced Mr. Market. Insider Monkey's flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
Bruce Kovner of Caxton Associates LP
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. We are also checking out this lithium company which could benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Keeping this in mind let's take a glance at the new hedge fund action encompassing Photronics, Inc. (NASDAQ:PLAB).
How have hedgies been trading Photronics, Inc. (NASDAQ:PLAB)?
At Q2's end, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from one quarter earlier. By comparison, 17 hedge funds held shares or bullish call options in PLAB a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Photronics, Inc. (NASDAQ:PLAB) was held by Renaissance Technologies, which reported holding $15.4 million worth of stock at the end of September. It was followed by Yost Capital Management with a $12 million position. Other investors bullish on the company included Royce & Associates, Divisar Capital, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Yost Capital Management allocated the biggest weight to Photronics, Inc. (NASDAQ:PLAB), around 10.28% of its 13F portfolio. Divisar Capital is also relatively very bullish on the stock, designating 3.06 percent of its 13F equity portfolio to PLAB.
Because Photronics, Inc. (NASDAQ:PLAB) has witnessed bearish sentiment from hedge fund managers, we can see that there exists a select few hedge funds that slashed their positions entirely by the end of the second quarter. Interestingly, Jeff Osher's No Street Capital cut the largest stake of the "upper crust" of funds tracked by Insider Monkey, comprising close to $8.1 million in stock. Mark Coe's fund, Intrinsic Edge Capital, also said goodbye to its stock, about $1.1 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 1 funds by the end of the second quarter.
Let's check out hedge fund activity in other stocks similar to Photronics, Inc. (NASDAQ:PLAB). We will take a look at First Foundation Inc (NASDAQ:FFWM), First Bancorp (NASDAQ:FBNC), Fusion Pharmaceuticals Inc. (NASDAQ:FUSN), Forterra, Inc. (NASDAQ:FRTA), NextGen Healthcare, Inc. (NASDAQ:NXGN), AAR Corp. (NYSE:AIR), and Forestar Group Inc. (NYSE:FOR). All of these stocks' market caps are closest to PLAB's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FFWM,14,54824,2 FBNC,17,43126,4 FUSN,19,218977,19 FRTA,13,79019,-1 NXGN,17,25837,-4 AIR,19,48307,1 FOR,14,83170,7 Average,16.1,79037,4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.1 hedge funds with bullish positions and the average amount invested in these stocks was $79 million. That figure was $87 million in PLAB's case. Fusion Pharmaceuticals Inc. (NASDAQ:FUSN) is the most popular stock in this table. On the other hand Forterra, Inc. (NASDAQ:FRTA) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Photronics, Inc. (NASDAQ:PLAB) is more popular among hedge funds. Our overall hedge fund sentiment score for PLAB is 82.6. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. Unfortunately PLAB wasn't nearly as popular as these 10 stocks and hedge funds that were betting on PLAB were disappointed as the stock returned -10.5% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.