Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients' money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space. Nevertheless, it is also possible to identify cheap large cap stocks by following the footsteps of best performing hedge funds.
Patrick Industries, Inc. (NASDAQ:PATK) investors should be aware of a decrease in activity from the world's largest hedge funds lately. PATK was in 15 hedge funds' portfolios at the end of the second quarter of 2019. There were 17 hedge funds in our database with PATK positions at the end of the previous quarter. Our calculations also showed that PATK isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to 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 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a gander at the latest hedge fund action encompassing Patrick Industries, Inc. (NASDAQ:PATK).
Hedge fund activity in Patrick Industries, Inc. (NASDAQ:PATK)
At Q2's end, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -12% from the first quarter of 2019. By comparison, 21 hedge funds held shares or bullish call options in PATK a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Tontine Asset Management was the largest shareholder of Patrick Industries, Inc. (NASDAQ:PATK), with a stake worth $40.3 million reported as of the end of March. Trailing Tontine Asset Management was Guardian Point Capital, which amassed a stake valued at $14.8 million. Royce & Associates, Nokomis Capital, and Arrowstreet Capital were also very fond of the stock, giving the stock large weights in their portfolios.
Because Patrick Industries, Inc. (NASDAQ:PATK) has witnessed a decline in interest from the entirety of the hedge funds we track, we can see that there was a specific group of fund managers who were dropping their full holdings by the end of the second quarter. It's worth mentioning that Brad Dunkley and Blair Levinsky's Waratah Capital Advisors said goodbye to the biggest investment of all the hedgies tracked by Insider Monkey, totaling an estimated $12.6 million in stock. Paul Marshall and Ian Wace's fund, Marshall Wace LLP, also dropped its stock, about $3.3 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds by the end of the second quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Patrick Industries, Inc. (NASDAQ:PATK) but similarly valued. These stocks are Teekay LNG Partners L.P. (NYSE:TGP), Lantheus Holdings Inc (NASDAQ:LNTH), ARMOUR Residential REIT, Inc. (NYSE:ARR), and Fitbit Inc (NYSE:FIT). This group of stocks' market values are similar to PATK's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TGP,9,43758,1 LNTH,15,103780,-3 ARR,8,66931,0 FIT,13,81288,-5 Average,11.25,73939,-1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $74 million. That figure was $87 million in PATK's case. Lantheus Holdings Inc (NASDAQ:LNTH) is the most popular stock in this table. On the other hand ARMOUR Residential REIT, Inc. (NYSE:ARR) is the least popular one with only 8 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. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately PATK wasn't nearly as popular as these 20 stocks and hedge funds that were betting on PATK were disappointed as the stock returned -12.8% during the third quarter and underperformed 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.