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Hedge Funds Can’t Stop Buying Peloton Interactive, Inc. (PTON)

Debasis Saha
·6 min read

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Peloton Interactive, Inc. (NASDAQ:PTON) and determine whether hedge funds skillfully traded this stock.

Peloton Interactive, Inc. (NASDAQ:PTON) was in 50 hedge funds' portfolios at the end of June. The all time high for this statistics is 48. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. PTON has experienced an increase in hedge fund interest of late. There were 36 hedge funds in our database with PTON positions at the end of the first quarter. Our calculations also showed that PTON 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.

To the average investor there are a multitude of indicators market participants use to value their stock investments. A couple of the best indicators are hedge fund and insider trading interest. We have shown that, historically, those who follow the best picks of the top money managers can outclass their index-focused peers by a very impressive margin (see the details here).

COATUE MANAGEMENT
COATUE MANAGEMENT

Philippe Laffont of Coatue Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. 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 precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind we're going to analyze the new hedge fund action surrounding Peloton Interactive, Inc. (NASDAQ:PTON).

How are hedge funds trading Peloton Interactive, Inc. (NASDAQ:PTON)?

At the end of June, a total of 50 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 39% from the previous quarter. The graph below displays the number of hedge funds with bullish position in PTON over the last 20 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is PTON A Good Stock To Buy?
Is PTON A Good Stock To Buy?

Among these funds, Tiger Global Management LLC held the most valuable stake in Peloton Interactive, Inc. (NASDAQ:PTON), which was worth $306.2 million at the end of the third quarter. On the second spot was Coatue Management which amassed $297 million worth of shares. Woodson Capital Management, Renaissance Technologies, and Darsana Capital Partners 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 Woodson Capital Management allocated the biggest weight to Peloton Interactive, Inc. (NASDAQ:PTON), around 16.46% of its 13F portfolio. Woodson Capital Management is also relatively very bullish on the stock, earmarking 10.23 percent of its 13F equity portfolio to PTON.

As industrywide interest jumped, key money managers were leading the bulls' herd. Darsana Capital Partners, managed by Anand Desai, established the most outsized position in Peloton Interactive, Inc. (NASDAQ:PTON). Darsana Capital Partners had $144.4 million invested in the company at the end of the quarter. James Crichton's Hitchwood Capital Management also initiated a $75.1 million position during the quarter. The other funds with new positions in the stock are Nancy Zevenbergen's Zevenbergen Capital Investments, Christopher R. Hansen's Valiant Capital, and Glen Kacher's Light Street Capital.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Peloton Interactive, Inc. (NASDAQ:PTON) but similarly valued. We will take a look at CGI Inc. (NYSE:GIB), Fox Corporation (NASDAQ:FOX), Fox Corporation (NASDAQ:FOXA), Maxim Integrated Products Inc. (NASDAQ:MXIM), Laboratory Corp. of America Holdings (NYSE:LH), Amcor plc (NYSE:AMCR), and Pioneer Natural Resources Company (NYSE:PXD). All of these stocks' market caps match PTON's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GIB,19,259686,1 FOX,20,566122,-2 FOXA,35,1611691,-3 MXIM,33,323780,3 LH,52,1579826,7 AMCR,16,201571,-3 PXD,35,341030,-5 Average,30,697672,-0.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 30 hedge funds with bullish positions and the average amount invested in these stocks was $698 million. That figure was $2110 million in PTON's case. Laboratory Corp. of America Holdings (NYSE:LH) is the most popular stock in this table. On the other hand Amcor plc (NYSE:AMCR) is the least popular one with only 16 bullish hedge fund positions. Peloton Interactive, Inc. (NASDAQ:PTON) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PTON is 87.2. 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. 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 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Hedge funds were also right about betting on PTON as the stock returned 32.7% since Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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