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Did Hedge Funds Drop The Ball On PagSeguro Digital Ltd. (PAGS) ?

Nina Todic

The fourth quarter was a rough one for most investors, as fears of a rising interest rate environment in the U.S, a trade war with China, and a more or less stagnant Europe, weighed heavily on the minds of investors. Both the S&P 500 and Russell 2000 sank as a result, with the Russell 2000, which is composed of smaller companies, being hit especially hard. This was primarily due to hedge funds, which are big supporters of small-cap stocks, pulling some of their capital out of the volatile markets during this time. Let's look at how this market volatility affected the sentiment of hedge funds towards PagSeguro Digital Ltd. (NYSE:PAGS), and what that likely means for the prospects of the company and its stock.

PagSeguro Digital Ltd. (NYSE:PAGS) has experienced a decrease in hedge fund sentiment in recent months. Our calculations also showed that PAGS isn't among the 30 most popular stocks among hedge funds.

Today there are several formulas stock market investors have at their disposal to analyze publicly traded companies. A pair of the less known formulas are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the best picks of the top money managers can beat the broader indices by a healthy margin (see the details here).

SAC CAPITAL ADVISORS

We're going to analyze the recent hedge fund action regarding PagSeguro Digital Ltd. (NYSE:PAGS).

What does the smart money think about PagSeguro Digital Ltd. (NYSE:PAGS)?

At the end of the fourth quarter, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of -38% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards PAGS over the last 14 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

PAGS

More specifically, Melvin Capital Management was the largest shareholder of PagSeguro Digital Ltd. (NYSE:PAGS), with a stake worth $323 million reported as of the end of September. Trailing Melvin Capital Management was Sylebra Capital Management, which amassed a stake valued at $99.9 million. Steadfast Capital Management, Hunt Lane Capital, and Point72 Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.

Since PagSeguro Digital Ltd. (NYSE:PAGS) has witnessed bearish sentiment from the aggregate hedge fund industry, it's safe to say that there was a specific group of hedge funds that slashed their positions entirely by the end of the third quarter. It's worth mentioning that Andrew Immerman and Jeremy Schiffman's Palestra Capital Management dropped the largest position of the "upper crust" of funds followed by Insider Monkey, comprising an estimated $65 million in stock. Glen Kacher's fund, Light Street Capital, also dumped its stock, about $52.8 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 15 funds by the end of the third quarter.

Let's check out hedge fund activity in other stocks similar to PagSeguro Digital Ltd. (NYSE:PAGS). These stocks are Autoliv Inc. (NYSE:ALV), The Macerich Company (NYSE:MAC), Encompass Health Corporation (NYSE:EHC), and Aqua America Inc (NYSE:WTR). All of these stocks' market caps are similar to PAGS's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALV,13,436318,0 MAC,25,250515,-5 EHC,30,418019,5 WTR,19,172522,6 Average,21.75,319344,1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $319 million. That figure was $906 million in PAGS's case. Encompass Health Corporation (NYSE:EHC) is the most popular stock in this table. On the other hand Autoliv Inc. (NYSE:ALV) is the least popular one with only 13 bullish hedge fund positions. PagSeguro Digital Ltd. (NYSE:PAGS) is not the most popular stock in this group but hedge fund interest is still above average. 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 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Hedge funds were also right about betting on PAGS as the stock returned 54.5% and outperformed the market as well.

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

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