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Should I Buy Petco Health and Wellness Company, Inc. (WOOF)?

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  • WOOF

The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the first quarter, which unveil their equity positions as of March 31st. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Petco Health and Wellness Company, Inc. (NASDAQ:WOOF).

Is Petco Health and Wellness Company, Inc. (NASDAQ:WOOF) a buy right now? The smart money was getting more optimistic. The number of long hedge fund positions rose by 25 in recent months. Petco Health and Wellness Company, Inc. (NASDAQ:WOOF) was in 25 hedge funds' portfolios at the end of the first quarter of 2021. Our calculations also showed that WOOF isn't among the 30 most popular stocks among hedge funds (click for Q1 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 115 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.

Arthur B Cohen and Joseph Healey of Healthcor Management LP

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, economists warn of inflation flare up. So, we are checking out this backdoor gold play that has hit peak gains of 718% in a little over a year. We go through lists like the 10 best battery 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. With all of this in mind we're going to view the new hedge fund action regarding Petco Health and Wellness Company, Inc. (NASDAQ:WOOF).

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

At the end of March, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25 from the fourth quarter of 2020. By comparison, 0 hedge funds held shares or bullish call options in WOOF a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Healthcor Management LP was the largest shareholder of Petco Health and Wellness Company, Inc. (NASDAQ:WOOF), with a stake worth $68.4 million reported as of the end of March. Trailing Healthcor Management LP was Valiant Capital, which amassed a stake valued at $22.2 million. Alyeska Investment Group, Citadel Investment Group, and Candlestick Capital 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 0 allocated the biggest weight to Petco Health and Wellness Company, Inc. (NASDAQ:WOOF), around 2.42% of its 13F portfolio. 0 is also relatively very bullish on the stock, setting aside 0.86 percent of its 13F equity portfolio to WOOF.

With a general bullishness amongst the heavyweights, some big names have jumped into Petco Health and Wellness Company, Inc. (NASDAQ:WOOF) headfirst. Healthcor Management LP, managed by Arthur B Cohen and Joseph Healey, created the largest position in Petco Health and Wellness Company, Inc. (NASDAQ:WOOF). Healthcor Management LP had $68.4 million invested in the company at the end of the quarter. Christopher R. Hansen's Valiant Capital also made a $22.2 million investment in the stock during the quarter. The other funds with brand new WOOF positions are Anand Parekh's Alyeska Investment Group, Ken Griffin's Citadel Investment Group, and Jack Woodruff's Candlestick Capital Management.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Petco Health and Wellness Company, Inc. (NASDAQ:WOOF) but similarly valued. We will take a look at Companhia de Saneamento Básico do Estado de São Paulo - SABESP (NYSE:SBS), Grupo Televisa SAB (NYSE:TV), Beam Therapeutics Inc. (NASDAQ:BEAM), Webster Financial Corporation (NYSE:WBS), United Bankshares, Inc. (NASDAQ:UBSI), Allogene Therapeutics, Inc. (NASDAQ:ALLO), and Emergent Biosolutions Inc (NYSE:EBS). This group of stocks' market values are closest to WOOF's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SBS,10,265538,-2 TV,15,752577,-5 BEAM,18,956334,4 WBS,27,431270,1 UBSI,9,44083,0 ALLO,19,282736,1 EBS,13,123191,-6 Average,15.9,407961,-1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.9 hedge funds with bullish positions and the average amount invested in these stocks was $408 million. That figure was $202 million in WOOF's case. Webster Financial Corporation (NYSE:WBS) is the most popular stock in this table. On the other hand United Bankshares, Inc. (NASDAQ:UBSI) is the least popular one with only 9 bullish hedge fund positions. Petco Health and Wellness Company, Inc. (NASDAQ:WOOF) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for WOOF is 81.1. 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. 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 24% in 2021 through July 9th and beat the market again by 6.7 percentage points. Unfortunately WOOF wasn't nearly as popular as these 5 stocks and hedge funds that were betting on WOOF were disappointed as the stock returned -3.2% since the end of March (through 7/9) 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 many of these stocks already outperformed the market since 2019.

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