We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let's take a look at whether Pretium Resources Inc (NYSE:PVG) is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is Pretium Resources Inc (NYSE:PVG) ready to rally soon? Hedge funds are in an optimistic mood. The number of bullish hedge fund positions inched up by 2 recently. Our calculations also showed that PVG isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_25305" align="aligncenter" width="400"] John Paulson of Paulson & Co[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. 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 S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind let's go over the key hedge fund action encompassing Pretium Resources Inc (NYSE:PVG).
Hedge fund activity in Pretium Resources Inc (NYSE:PVG)
Heading into the first quarter of 2020, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from the third quarter of 2019. By comparison, 22 hedge funds held shares or bullish call options in PVG 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.
The largest stake in Pretium Resources Inc (NYSE:PVG) was held by Paulson & Co, which reported holding $28.8 million worth of stock at the end of September. It was followed by Polar Capital with a $20.6 million position. Other investors bullish on the company included Bridger Management, Millennium Management, and PEAK6 Capital Management. In terms of the portfolio weights assigned to each position Sound Point Capital allocated the biggest weight to Pretium Resources Inc (NYSE:PVG), around 1.79% of its 13F portfolio. Sprott Asset Management is also relatively very bullish on the stock, setting aside 1.75 percent of its 13F equity portfolio to PVG.
As industrywide interest jumped, some big names were breaking ground themselves. Paulson & Co, managed by John Paulson, created the largest position in Pretium Resources Inc (NYSE:PVG). Paulson & Co had $28.8 million invested in the company at the end of the quarter. Louis Bacon's Moore Global Investments also made a $2.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Brad Dunkley and Blair Levinsky's Waratah Capital Advisors and Minhua Zhang's Weld Capital Management.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Pretium Resources Inc (NYSE:PVG) but similarly valued. We will take a look at Retail Opportunity Investments Corp (NASDAQ:ROIC), Focus Financial Partners Inc. (NASDAQ:FOCS), Change Healthcare Inc. (NASDAQ:CHNG), and Meritor Inc (NYSE:MTOR). This group of stocks' market caps are closest to PVG's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ROIC,21,99614,1 FOCS,12,47432,1 CHNG,25,311536,3 MTOR,29,412626,4 Average,21.75,217802,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $218 million. That figure was $120 million in PVG's case. Meritor Inc (NYSE:MTOR) is the most popular stock in this table. On the other hand Focus Financial Partners Inc. (NASDAQ:FOCS) is the least popular one with only 12 bullish hedge fund positions. Pretium Resources Inc (NYSE:PVG) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately PVG wasn't nearly as popular as these 20 stocks and hedge funds that were betting on PVG were disappointed as the stock returned -40% 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year. 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.