Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Hedge fund interest in Pacira BioSciences, Inc. (NASDAQ:PCRX) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Studio City International Holdings Limited (NYSE:MSC), Shenandoah Telecommunications Company (NASDAQ:SHEN), and Kaiser Aluminum Corp. (NASDAQ:KALU) to gather more data points. Our calculations also showed that PCRX isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to 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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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_25305" align="aligncenter" width="450"] John Paulson of Paulson & Co[/caption]
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 new hedge fund action encompassing Pacira BioSciences, Inc. (NASDAQ:PCRX).
How have hedgies been trading Pacira BioSciences, Inc. (NASDAQ:PCRX)?
Heading into the fourth quarter of 2019, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in PCRX over the last 17 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
More specifically, Paulson & Co was the largest shareholder of Pacira BioSciences, Inc. (NASDAQ:PCRX), with a stake worth $65.4 million reported as of the end of September. Trailing Paulson & Co was venBio Select Advisor, which amassed a stake valued at $60.9 million. D E Shaw, Renaissance Technologies, and Rock Springs Capital Management 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 Tamarack Capital Management allocated the biggest weight to Pacira BioSciences, Inc. (NASDAQ:PCRX), around 7.69% of its portfolio. venBio Select Advisor is also relatively very bullish on the stock, designating 2.54 percent of its 13F equity portfolio to PCRX.
Because Pacira BioSciences, Inc. (NASDAQ:PCRX) has experienced falling interest from hedge fund managers, it's safe to say that there lies a certain "tier" of fund managers who were dropping their positions entirely last quarter. Interestingly, Mitchell Blutt's Consonance Capital Management said goodbye to the biggest investment of all the hedgies followed by Insider Monkey, totaling close to $121.8 million in stock. Christopher James's fund, Partner Fund Management, also sold off its stock, about $31.9 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Pacira BioSciences, Inc. (NASDAQ:PCRX) but similarly valued. These stocks are Studio City International Holdings Limited (NYSE:MSC), Shenandoah Telecommunications Company (NASDAQ:SHEN), Kaiser Aluminum Corp. (NASDAQ:KALU), and Hub Group Inc (NASDAQ:HUBG). This group of stocks' market values resemble PCRX's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MSC,4,243082,0 SHEN,15,78895,-3 KALU,20,118922,5 HUBG,21,255820,3 Average,15,174180,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $174 million. That figure was $395 million in PCRX's case. Hub Group Inc (NASDAQ:HUBG) is the most popular stock in this table. On the other hand Studio City International Holdings Limited (NYSE:MSC) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Pacira BioSciences, Inc. (NASDAQ:PCRX) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on PCRX as the stock returned 21.4% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.