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Did Hedge Funds Drop The Ball On PFSweb, Inc. (PFSW) ?

Debasis Saha

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like PFSweb, Inc. (NASDAQ:PFSW).

PFSweb, Inc. (NASDAQ:PFSW) investors should pay attention to an increase in support from the world's most elite money managers in recent months. PFSW was in 6 hedge funds' portfolios at the end of September. There were 5 hedge funds in our database with PFSW holdings at the end of the previous quarter. Our calculations also showed that PFSW isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

According to most investors, hedge funds are assumed to be worthless, old financial vehicles of yesteryear. While there are over 8000 funds in operation at present, Our researchers hone in on the moguls of this club, around 750 funds. These money managers handle the lion's share of the smart money's total asset base, and by monitoring their finest investments, Insider Monkey has discovered a few investment strategies that have historically outperformed the market. Insider Monkey's flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points per annum since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

Arnaud Ajdler Engine Capital

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. With all of this in mind let's take a glance at the key hedge fund action encompassing PFSweb, Inc. (NASDAQ:PFSW).

What have hedge funds been doing with PFSweb, Inc. (NASDAQ:PFSW)?

Heading into the fourth quarter of 2019, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of 20% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PFSW over the last 17 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.

Is PFSW A Good Stock To Buy?

Among these funds, Engine Capital held the most valuable stake in PFSweb, Inc. (NASDAQ:PFSW), which was worth $3.3 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $1.5 million worth of shares. Winton Capital Management, Arrowstreet Capital, and Paloma Partners 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 Engine Capital allocated the biggest weight to PFSweb, Inc. (NASDAQ:PFSW), around 1.56% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, designating 0.003 percent of its 13F equity portfolio to PFSW.

As one would reasonably expect, some big names have jumped into PFSweb, Inc. (NASDAQ:PFSW) headfirst. Winton Capital Management, managed by David Harding, established the most outsized position in PFSweb, Inc. (NASDAQ:PFSW). Winton Capital Management had $0.3 million invested in the company at the end of the quarter.

Let's go over hedge fund activity in other stocks similar to PFSweb, Inc. (NASDAQ:PFSW). We will take a look at Build-A-Bear Workshop, Inc (NYSE:BBW), Edesa Biotech, Inc. (NASDAQ:EDSA), 1895 Bancorp of Wisconsin, Inc. (NASDAQ:BCOW), and China Natural Resources, Inc. (NASDAQ:CHNR). This group of stocks' market caps are closest to PFSW's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BBW,12,9450,1 EDSA,1,98,0 BCOW,1,174,0 CHNR,1,23,0 Average,3.75,2436,0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 3.75 hedge funds with bullish positions and the average amount invested in these stocks was $2 million. That figure was $5 million in PFSW's case. Build-A-Bear Workshop, Inc (NYSE:BBW) is the most popular stock in this table. On the other hand Edesa Biotech, Inc. (NASDAQ:EDSA) is the least popular one with only 1 bullish hedge fund positions. PFSweb, Inc. (NASDAQ:PFSW) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on PFSW as the stock returned 47.8% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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