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 Patrick Industries, Inc. (NASDAQ:PATK) and determine whether hedge funds had an edge regarding this stock.
Patrick Industries, Inc. (NASDAQ:PATK) has experienced a decrease in support from the world's most elite money managers in recent months. Our calculations also showed that PATK isn't among the 30 most popular stocks among hedge funds (click for Q1 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.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_26092" align="aligncenter" width="392"] Joel Greenblatt of Gotham Asset Management[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 10 most profitable companies in the world to identify emerging companies that are likely to deliver 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we're going to view the key hedge fund action encompassing Patrick Industries, Inc. (NASDAQ:PATK).
How have hedgies been trading Patrick Industries, Inc. (NASDAQ:PATK)?
At Q1's end, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -28% from the previous quarter. On the other hand, there were a total of 17 hedge funds with a bullish position in PATK a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Jeffrey Gendell's Tontine Asset Management has the most valuable position in Patrick Industries, Inc. (NASDAQ:PATK), worth close to $12.5 million, comprising 3.8% of its total 13F portfolio. Sitting at the No. 2 spot is Chuck Royce of Royce & Associates, with a $11.5 million position; 0.2% of its 13F portfolio is allocated to the company. Remaining peers with similar optimism encompass Tim David's Guardian Point Capital, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and Israel Englander's Millennium Management. In terms of the portfolio weights assigned to each position Tontine Asset Management allocated the biggest weight to Patrick Industries, Inc. (NASDAQ:PATK), around 3.81% of its 13F portfolio. Guardian Point Capital is also relatively very bullish on the stock, earmarking 3.5 percent of its 13F equity portfolio to PATK.
Seeing as Patrick Industries, Inc. (NASDAQ:PATK) has experienced bearish sentiment from the aggregate hedge fund industry, it's safe to say that there is a sect of fund managers who sold off their entire stakes heading into Q4. It's worth mentioning that Ira Unschuld's Brant Point Investment Management dumped the largest position of the "upper crust" of funds watched by Insider Monkey, worth an estimated $3.5 million in stock. Mark Coe's fund, Intrinsic Edge Capital, also said goodbye to its stock, about $3.1 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 5 funds heading into Q4.
Let's check out hedge fund activity in other stocks similar to Patrick Industries, Inc. (NASDAQ:PATK). We will take a look at Upland Software Inc (NASDAQ:UPLD), Qiwi PLC (NASDAQ:QIWI), Gossamer Bio, Inc. (NASDAQ:GOSS), and NetGear, Inc. (NASDAQ:NTGR). This group of stocks' market caps resemble PATK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UPLD,17,143956,-5 QIWI,11,42137,1 GOSS,10,80706,-2 NTGR,13,31992,-3 Average,12.75,74698,-2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $75 million. That figure was $50 million in PATK's case. Upland Software Inc (NASDAQ:UPLD) is the most popular stock in this table. On the other hand Gossamer Bio, Inc. (NASDAQ:GOSS) is the least popular one with only 10 bullish hedge fund positions. Patrick Industries, Inc. (NASDAQ:PATK) is not the most popular stock in this group but hedge fund interest is still above average. 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 13.3% in 2020 through June 25th but still beat the market by 16.8 percentage points. Hedge funds were also right about betting on PATK as the stock returned 103.1% in Q2 (through June 25th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.