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At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Primoris Services Corp (NASDAQ:PRIM) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Primoris Services Corp (NASDAQ:PRIM) has experienced an increase in activity from the world's largest hedge funds of late. Primoris Services Corp (NASDAQ:PRIM) was in 19 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 16. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 11 hedge funds in our database with PRIM positions at the end of the first quarter. Our calculations also showed that PRIM 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.
In the 21st century investor’s toolkit there are numerous signals stock market investors put to use to value their holdings. A couple of the less utilized signals are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the top picks of the elite money managers can trounce the market by a solid amount (see the details here).
Chuck Royce of Royce & Associates
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind we're going to check out the new hedge fund action surrounding Primoris Services Corp (NASDAQ:PRIM).
Hedge fund activity in Primoris Services Corp (NASDAQ:PRIM)
At Q2's end, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 73% from the first quarter of 2020. By comparison, 12 hedge funds held shares or bullish call options in PRIM a year ago. With the smart money's capital changing hands, there exists a few notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
The largest stake in Primoris Services Corp (NASDAQ:PRIM) was held by SG Capital Management, which reported holding $16.2 million worth of stock at the end of September. It was followed by Divisar Capital with a $13.9 million position. Other investors bullish on the company included Royce & Associates, Value Holdings LP, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Divisar Capital allocated the biggest weight to Primoris Services Corp (NASDAQ:PRIM), around 4.01% of its 13F portfolio. SG Capital Management is also relatively very bullish on the stock, setting aside 3.02 percent of its 13F equity portfolio to PRIM.
Now, key money managers were leading the bulls' herd. SG Capital Management, managed by Ken Grossman and Glen Schneider, created the most outsized position in Primoris Services Corp (NASDAQ:PRIM). SG Capital Management had $16.2 million invested in the company at the end of the quarter. Mark Coe's Intrinsic Edge Capital also initiated a $3.8 million position during the quarter. The following funds were also among the new PRIM investors: Israel Englander's Millennium Management, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, and Paul Marshall and Ian Wace's Marshall Wace LLP.
Let's now review hedge fund activity in other stocks similar to Primoris Services Corp (NASDAQ:PRIM). These stocks are nLIGHT, Inc. (NASDAQ:LASR), Applied Molecular Transport Inc. (NASDAQ:AMTI), Arcos Dorados Holding Inc (NYSE:ARCO), Realogy Holdings Corp (NYSE:RLGY), OrthoPediatrics Corp. (NASDAQ:KIDS), Trinseo S.A. (NYSE:TSE), and QAD Inc. (NASDAQ:QADB). All of these stocks' market caps are closest to PRIM's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LASR,12,58428,5 AMTI,8,70617,8 ARCO,15,53175,3 RLGY,24,259295,-1 KIDS,13,55470,6 TSE,18,39880,1 QADB,1,635,0 Average,13,76786,3.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $77 million. That figure was $74 million in PRIM's case. Realogy Holdings Corp (NYSE:RLGY) is the most popular stock in this table. On the other hand QAD Inc. (NASDAQ:QADB) is the least popular one with only 1 bullish hedge fund positions. Primoris Services Corp (NASDAQ:PRIM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PRIM is 79.1. 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 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately PRIM wasn't nearly as popular as these 10 stocks and hedge funds that were betting on PRIM were disappointed as the stock returned 1.9% in Q3 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.
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Disclosure: None. This article was originally published at Insider Monkey.