Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first quarter, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first quarter still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Patrick Industries, Inc. (NASDAQ:PATK) changed recently.
Is Patrick Industries, Inc. (NASDAQ:PATK) the right pick for your portfolio? Prominent investors are taking a pessimistic view. The number of long hedge fund bets decreased by 7 in recent months. Our calculations also showed that patk isn't among the 30 most popular stocks among hedge funds. PATK was in 17 hedge funds' portfolios at the end of March. There were 24 hedge funds in our database with PATK positions at the end of the previous quarter.
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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
We're going to review the key hedge fund action regarding Patrick Industries, Inc. (NASDAQ:PATK).
What have hedge funds been doing with Patrick Industries, Inc. (NASDAQ:PATK)?
At Q1's end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -29% from the previous quarter. On the other hand, there were a total of 13 hedge funds with a bullish position in PATK a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Jeffrey Gendell's Tontine Asset Management has the number one position in Patrick Industries, Inc. (NASDAQ:PATK), worth close to $39.2 million, amounting to 5.4% of its total 13F portfolio. Sitting at the No. 2 spot is Tim David of Guardian Point Capital, with a $13.6 million position; the fund has 5.4% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that hold long positions comprise Brad Dunkley and Blair Levinsky's Waratah Capital Advisors, Brett Hendrickson's Nokomis Capital and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital.
Because Patrick Industries, Inc. (NASDAQ:PATK) has faced bearish sentiment from the smart money, it's safe to say that there lies a certain "tier" of fund managers who sold off their full holdings last quarter. Intriguingly, Jim Simons's Renaissance Technologies dropped the biggest position of the "upper crust" of funds monitored by Insider Monkey, comprising about $6.9 million in stock, and Israel Englander's Millennium Management was right behind this move, as the fund cut about $0.8 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 7 funds last quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Patrick Industries, Inc. (NASDAQ:PATK) but similarly valued. We will take a look at Cryolife Inc (NYSE:CRY), Universal Insurance Holdings, Inc. (NYSE:UVE), Golub Capital BDC Inc (NASDAQ:GBDC), and Huron Consulting Group (NASDAQ:HURN). All of these stocks' market caps are similar to PATK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CRY,13,25250,2 UVE,13,38385,-7 GBDC,8,29834,-2 HURN,11,25163,-2 Average,11.25,29658,-2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $30 million. That figure was $92 million in PATK's case. Cryolife Inc (NYSE:CRY) is the most popular stock in this table. On the other hand Golub Capital BDC Inc (NASDAQ:GBDC) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Patrick Industries, Inc. (NASDAQ:PATK) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Hedge funds were also right about betting on PATK, though not to the same extent, as the stock returned 4% during the same period and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.