U.S. markets open in 7 hours 53 minutes
  • S&P Futures

    3,366.75
    +14.75 (+0.44%)
     
  • Dow Futures

    27,830.00
    +166.00 (+0.60%)
     
  • Nasdaq Futures

    11,446.75
    +39.50 (+0.35%)
     
  • Russell 2000 Futures

    1,512.00
    +7.60 (+0.51%)
     
  • Crude Oil

    40.22
    0.00 (0.00%)
     
  • Gold

    1,898.30
    +2.80 (+0.15%)
     
  • Silver

    23.74
    +0.24 (+1.03%)
     
  • EUR/USD

    1.1747
    +0.0021 (+0.18%)
     
  • 10-Yr Bond

    0.6770
    0.0000 (0.00%)
     
  • Vix

    26.37
    +0.10 (+0.38%)
     
  • GBP/USD

    1.2939
    +0.0018 (+0.14%)
     
  • USD/JPY

    105.4690
    +0.0390 (+0.04%)
     
  • BTC-USD

    10,832.10
    +36.07 (+0.33%)
     
  • CMC Crypto 200

    233.07
    +11.68 (+5.28%)
     
  • FTSE 100

    5,866.10
    -31.40 (-0.53%)
     
  • Nikkei 225

    23,184.93
    -0.19 (-0.00%)
     

Hedge Funds Are Coming Back To Pure Storage, Inc. (PSTG)

Asma UL Husna

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 Pure Storage, Inc. (NYSE:PSTG) and determine whether hedge funds had an edge regarding this stock.

Pure Storage, Inc. (NYSE:PSTG) was in 29 hedge funds' portfolios at the end of June. The all time high for this statistics is 35. PSTG investors should pay attention to an increase in hedge fund interest lately. There were 25 hedge funds in our database with PSTG positions at the end of the first quarter. Our calculations also showed that PSTG isn't among the 30 most popular stocks among hedge funds (click for Q2 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 56 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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ricky Sandler of Eminence Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now let's take a gander at the recent hedge fund action encompassing Pure Storage, Inc. (NYSE:PSTG).

How have hedgies been trading Pure Storage, Inc. (NYSE:PSTG)?

At the end of June, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 16% from the first quarter of 2020. By comparison, 23 hedge funds held shares or bullish call options in PSTG a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Eminence Capital was the largest shareholder of Pure Storage, Inc. (NYSE:PSTG), with a stake worth $146.5 million reported as of the end of September. Trailing Eminence Capital was D E Shaw, which amassed a stake valued at $56.9 million. Citadel Investment Group, Two Sigma Advisors, and Renaissance Technologies 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 Cannell Capital allocated the biggest weight to Pure Storage, Inc. (NYSE:PSTG), around 3% of its 13F portfolio. Eminence Capital is also relatively very bullish on the stock, earmarking 1.45 percent of its 13F equity portfolio to PSTG.

With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Paloma Partners, managed by Donald Sussman, established the most outsized position in Pure Storage, Inc. (NYSE:PSTG). Paloma Partners had $4.1 million invested in the company at the end of the quarter. Gavin Saitowitz and Cisco J. del Valle's Springbok Capital also made a $1.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Greg Eisner's Engineers Gate Manager, David Harding's Winton Capital Management, and Mika Toikka's AlphaCrest Capital Management.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Pure Storage, Inc. (NYSE:PSTG) but similarly valued. These stocks are The AZEK Company Inc. (NYSE:AZEK), Virtu Financial Inc (NASDAQ:VIRT), CoreSite Realty Corp (NYSE:COR), 1Life Healthcare, Inc. (NASDAQ:ONEM), Q2 Holdings Inc (NYSE:QTWO), Science Applications International Corp (NYSE:SAIC), and Haemonetics Corporation (NYSE:HAE). All of these stocks' market caps are closest to PSTG's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AZEK,26,237042,26 VIRT,28,213170,11 COR,21,265464,-2 ONEM,20,345146,10 QTWO,26,290188,8 SAIC,35,448930,1 HAE,39,533278,5 Average,27.9,333317,8.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.9 hedge funds with bullish positions and the average amount invested in these stocks was $333 million. That figure was $354 million in PSTG's case. Haemonetics Corporation (NYSE:HAE) is the most popular stock in this table. On the other hand 1Life Healthcare, Inc. (NASDAQ:ONEM) is the least popular one with only 20 bullish hedge fund positions. Pure Storage, Inc. (NYSE:PSTG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PSTG is 57.5. 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 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 23.8% in 2020 through September 14th and beat the market by 17.6 percentage points. Unfortunately PSTG wasn't nearly as popular as these 10 stocks and hedge funds that were betting on PSTG were disappointed as the stock returned -11.9% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

Get real-time email alerts: Follow Pure Storage Inc. (NYSE:PSTG)

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

Related Content