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Hedge Funds Never Been Less Bullish On Patterson Companies, Inc. (PDCO)

Abigail Fisher
·6 min read

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the first quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Patterson Companies, Inc. (NASDAQ:PDCO) based on that data.

Is Patterson Companies, Inc. (NASDAQ:PDCO) a bargain? Money managers are becoming less hopeful. The number of long hedge fund bets were trimmed by 8 lately. Our calculations also showed that PDCO 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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 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_30600" align="aligncenter" width="398"] Bruce Kovner of Caxton Associates LP[/caption]

Bruce Kovner, Caxton Associates LP
Bruce Kovner, Caxton Associates LP

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 let's take a look at the key hedge fund action encompassing Patterson Companies, Inc. (NASDAQ:PDCO).

How have hedgies been trading Patterson Companies, Inc. (NASDAQ:PDCO)?

At the end of the first quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -32% from the fourth quarter of 2019. On the other hand, there were a total of 28 hedge funds with a bullish position in PDCO a year ago. With hedgies' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Mario Gabelli's GAMCO Investors has the biggest position in Patterson Companies, Inc. (NASDAQ:PDCO), worth close to $24.1 million, amounting to 0.3% of its total 13F portfolio. On GAMCO Investors's heels is Cove Street Capital, managed by Jeffrey Bronchick, which holds a $8 million position; 1.6% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors that are bullish contain Ken Griffin's Citadel Investment Group, John Overdeck and David Siegel's Two Sigma Advisors and Cliff Asness's AQR Capital Management. In terms of the portfolio weights assigned to each position Cove Street Capital allocated the biggest weight to Patterson Companies, Inc. (NASDAQ:PDCO), around 1.64% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, dishing out 0.69 percent of its 13F equity portfolio to PDCO.

Judging by the fact that Patterson Companies, Inc. (NASDAQ:PDCO) has witnessed declining sentiment from the aggregate hedge fund industry, it's safe to say that there were a few hedgies who sold off their full holdings by the end of the first quarter. It's worth mentioning that Robert Joseph Caruso's Select Equity Group dumped the biggest position of the 750 funds followed by Insider Monkey, worth close to $47.5 million in stock. Peter Rathjens, Bruce Clarke and John Campbell's fund, Arrowstreet Capital, also dropped its stock, about $13.4 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 8 funds by the end of the first quarter.

Let's now take a look at hedge fund activity in other stocks similar to Patterson Companies, Inc. (NASDAQ:PDCO). We will take a look at Inspire Medical Systems, Inc. (NYSE:INSP), AeroVironment, Inc. (NASDAQ:AVAV), Theravance Biopharma Inc (NASDAQ:TBPH), and TransAlta Corporation (NYSE:TAC). This group of stocks' market valuations are closest to PDCO's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position INSP,25,335263,4 AVAV,10,51290,-3 TBPH,14,335681,1 TAC,15,55063,5 Average,16,194324,1.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $194 million. That figure was $55 million in PDCO's case. Inspire Medical Systems, Inc. (NYSE:INSP) is the most popular stock in this table. On the other hand AeroVironment, Inc. (NASDAQ:AVAV) is the least popular one with only 10 bullish hedge fund positions. Patterson Companies, Inc. (NASDAQ:PDCO) is not the most popular stock in this group but hedge fund interest is still above average. 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 13.4% in 2020 through June 22nd but still beat the market by 15.9 percentage points. Hedge funds were also right about betting on PDCO as the stock returned 31.3% in Q2 (through June 22nd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

[company-follow-email id=891024][/company-follow-email]

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

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