While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Pinterest, Inc. (NYSE:PINS) and see how the stock performed in comparison to hedge funds' consensus picks.
Pinterest, Inc. (NYSE:PINS) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 31 hedge funds' portfolios at the end of the third quarter of 2019. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Xylem Inc (NYSE:XYL), Discovery, Inc. (NASDAQ:DISCA), and Broadridge Financial Solutions, Inc. (NYSE:BR) to gather more data points. Our calculations also showed that PINS 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_671014" align="aligncenter" width="600"] David Brown of Hawk Ridge Management[/caption]
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 gander at the recent hedge fund action regarding Pinterest, Inc. (NYSE:PINS).
What does smart money think about Pinterest, Inc. (NYSE:PINS)?
Heading into the fourth quarter of 2019, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. By comparison, 0 hedge funds held shares or bullish call options in PINS a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
More specifically, Valiant Capital was the largest shareholder of Pinterest, Inc. (NYSE:PINS), with a stake worth $716.3 million reported as of the end of September. Trailing Valiant Capital was SQN Investors, which amassed a stake valued at $54.5 million. Polar Capital, Light Street Capital, and ThornTree Capital 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 Valiant Capital allocated the biggest weight to Pinterest, Inc. (NYSE:PINS), around 39.03% of its 13F portfolio. ThornTree Capital Partners is also relatively very bullish on the stock, setting aside 9.37 percent of its 13F equity portfolio to PINS.
Seeing as Pinterest, Inc. (NYSE:PINS) has witnessed declining sentiment from the entirety of the hedge funds we track, logic holds that there was a specific group of money managers that decided to sell off their positions entirely last quarter. It's worth mentioning that Dan Loeb's Third Point dropped the largest position of the 750 funds monitored by Insider Monkey, comprising close to $36.9 million in stock. James Crichton's fund, Hitchwood Capital Management, also sold off its stock, about $29.9 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now take a look at hedge fund activity in other stocks similar to Pinterest, Inc. (NYSE:PINS). We will take a look at Xylem Inc (NYSE:XYL), Discovery, Inc. (NASDAQ:DISCA), Broadridge Financial Solutions, Inc. (NYSE:BR), and Seagate Technology plc (NASDAQ:STX). This group of stocks' market caps are similar to PINS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position XYL,19,524367,0 DISCA,26,418972,2 BR,27,312931,6 STX,26,2311475,3 Average,24.5,891936,2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $892 million. That figure was $980 million in PINS's case. Broadridge Financial Solutions, Inc. (NYSE:BR) is the most popular stock in this table. On the other hand Xylem Inc (NYSE:XYL) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Pinterest, Inc. (NYSE:PINS) 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. Unfortunately PINS wasn't nearly as popular as these 20 stocks and hedge funds that were betting on PINS were disappointed as the stock returned -24.6% so far in 2019 (through 12/23) and trailed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 65 percent of these stocks already outperformed the market in 2019. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.