U.S. Markets close in 1 hr 42 mins

Hedge Funds Have Never Been Less Bullish On Pearson PLC (PSO)

Nina Todic

Does Pearson PLC (NYSE:PSO) represent a good buying opportunity at the moment? Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.

Is Pearson PLC (NYSE:PSO) a buy here? Hedge funds are in a bearish mood. The number of bullish hedge fund bets retreated by 1 in recent months. Our calculations also showed that PSO isn't among the 30 most popular stocks among hedge funds. PSO was in 3 hedge funds' portfolios at the end of the third quarter of 2019. There were 4 hedge funds in our database with PSO holdings at the end of the previous quarter.

According to most shareholders, hedge funds are assumed to be worthless, old investment tools of the past. While there are more than 8000 funds with their doors open at the moment, Our experts choose to focus on the moguls of this club, approximately 750 funds. It is estimated that this group of investors control the lion's share of the smart money's total capital, and by monitoring their inimitable investments, Insider Monkey has discovered various investment strategies that have historically surpassed Mr. Market. Insider Monkey's flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points annually since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

[caption id="attachment_673876" align="aligncenter" width="473"] John Overdeck of Two Sigma Advisors[/caption]

John Overdeck of Two Sigma

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to check out the fresh hedge fund action surrounding Pearson PLC (NYSE:PSO).

Hedge fund activity in Pearson PLC (NYSE:PSO)

At Q3's end, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of -25% from the second quarter of 2019. On the other hand, there were a total of 3 hedge funds with a bullish position in PSO a year ago. With the smart money's sentiment swirling, there exists a few notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

No of Hedge Funds with PSO Positions

According to Insider Monkey's hedge fund database, Renaissance Technologies has the number one position in Pearson PLC (NYSE:PSO), worth close to $3.4 million, corresponding to less than 0.1%% of its total 13F portfolio. The second most bullish fund manager is Millennium Management, managed by Israel Englander, which holds a $1.9 million position; less than 0.1%% of its 13F portfolio is allocated to the company. In terms of the portfolio weights assigned to each position Millennium Management allocated the biggest weight to Pearson PLC (NYSE:PSO), around 0.003% of its portfolio. Renaissance Technologies is also relatively very bullish on the stock, earmarking 0.0029 percent of its 13F equity portfolio to PSO.

Due to the fact that Pearson PLC (NYSE:PSO) has faced a decline in interest from hedge fund managers, it's safe to say that there was a specific group of money managers that decided to sell off their entire stakes in the third quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital dumped the largest stake of the 750 funds watched by Insider Monkey, worth an estimated $2.5 million in stock, and Michael Gelband's ExodusPoint Capital was right behind this move, as the fund said goodbye to about $0.1 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 1 funds in the third quarter.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Pearson PLC (NYSE:PSO) but similarly valued. These stocks are Hill-Rom Holdings, Inc. (NYSE:HRC), Axalta Coating Systems Ltd (NYSE:AXTA), Gentex Corporation (NASDAQ:GNTX), and Five Below Inc (NASDAQ:FIVE). All of these stocks' market caps are similar to PSO's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HRC,26,663107,-1 AXTA,56,2298717,15 GNTX,28,468671,5 FIVE,34,469205,-4 Average,36,974925,3.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 36 hedge funds with bullish positions and the average amount invested in these stocks was $975 million. That figure was $5 million in PSO's case. Axalta Coating Systems Ltd (NYSE:AXTA) is the most popular stock in this table. On the other hand Hill-Rom Holdings, Inc. (NYSE:HRC) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks Pearson PLC (NYSE:PSO) is even less popular than HRC. Hedge funds dodged a bullet by taking a bearish stance towards PSO. Our calculations showed that the top 20 most popular hedge fund stocks returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately PSO wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); PSO investors were disappointed as the stock returned -7.6% during the fourth quarter (through 11/22) 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 70 percent of these stocks already outperformed the market so far in Q4.

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

Related Content