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Do Hedge Funds Love Palo Alto Networks Inc (PANW)?

Abigail Fisher

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded Palo Alto Networks Inc (NYSE:PANW) based on those filings.

Palo Alto Networks Inc (NYSE:PANW) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 47 hedge funds' portfolios at the end of March. 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 Rogers Communications Inc. (NYSE:RCI), Microchip Technology Incorporated (NASDAQ:MCHP), and Telefonica Brasil SA (NYSE:VIV) to gather more data points. Our calculations also showed that PANW 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 72% since March 2017 and outperformed the S&P 500 ETFs by more than 44 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_189672" align="aligncenter" width="399"] David Blood of Generation Investment Management[/caption]

David Blood

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this successful trader’s “corona catalyst plays“. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we're going to take a glance at the latest hedge fund action regarding Palo Alto Networks Inc (NYSE:PANW).

Hedge fund activity in Palo Alto Networks Inc (NYSE:PANW)

At the end of the first quarter, a total of 47 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in PANW over the last 18 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stake in Palo Alto Networks Inc (NYSE:PANW), which was worth $888.6 million at the end of the third quarter. On the second spot was Generation Investment Management which amassed $409.7 million worth of shares. Harvard Management Co, D E Shaw, and SRS Investment Management 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 Harvard Management Co allocated the biggest weight to Palo Alto Networks Inc (NYSE:PANW), around 30.33% of its 13F portfolio. StackLine Partners is also relatively very bullish on the stock, dishing out 6.75 percent of its 13F equity portfolio to PANW.

Since Palo Alto Networks Inc (NYSE:PANW) has experienced a decline in interest from the entirety of the hedge funds we track, it's safe to say that there was a specific group of fund managers that elected to cut their entire stakes by the end of the third quarter. At the top of the heap, Bijan Modanlou, Joseph Bou-Saba, and Jayaveera Kodali's Alta Park Capital dropped the biggest stake of all the hedgies tracked by Insider Monkey, comprising an estimated $27 million in stock, and Baker Burleson and Stormy Scott's Banbury Partners was right behind this move, as the fund dropped about $19.5 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Palo Alto Networks Inc (NYSE:PANW) but similarly valued. These stocks are Rogers Communications Inc. (NYSE:RCI), Microchip Technology Incorporated (NASDAQ:MCHP), Telefonica Brasil SA (NYSE:VIV), and Canadian Natural Resources Limited (NYSE:CNQ). This group of stocks' market values are similar to PANW's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RCI,16,237258,3 MCHP,38,751411,-8 VIV,8,79400,-4 CNQ,26,107018,-3 Average,22,293772,-3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $294 million. That figure was $2722 million in PANW's case. Microchip Technology Incorporated (NASDAQ:MCHP) is the most popular stock in this table. On the other hand Telefonica Brasil SA (NYSE:VIV) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Palo Alto Networks Inc (NYSE:PANW) is more popular among hedge funds. 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 returned 7.9% in 2020 through May 22nd but still managed to beat the market by 15.6 percentage points. Hedge funds were also right about betting on PANW as the stock returned 45.1% so far in Q2 (through May 22nd) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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