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Is PagSeguro Digital Ltd. (PAGS) Going to Burn These Hedge Funds?

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Asma UL Husna
·6 min read
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The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded PagSeguro Digital Ltd. (NYSE:PAGS) and determine whether the smart money was really smart about this stock.

PagSeguro Digital Ltd. (NYSE:PAGS) investors should be aware of an increase in activity from the world's largest hedge funds of late. PagSeguro Digital Ltd. (NYSE:PAGS) was in 27 hedge funds' portfolios at the end of June. The all time high for this statistics is 48. Our calculations also showed that PAGS 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.

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 56 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.

SAC CAPITAL ADVISORS
SAC CAPITAL ADVISORS

Steven Cohen of Point72 Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind we're going to take a peek at the new hedge fund action encompassing PagSeguro Digital Ltd. (NYSE:PAGS).

What does smart money think about PagSeguro Digital Ltd. (NYSE:PAGS)?

At the end of the second quarter, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of 35% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in PAGS over the last 20 quarters. With hedge funds' 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).

The largest stake in PagSeguro Digital Ltd. (NYSE:PAGS) was held by Sylebra Capital Management, which reported holding $388.4 million worth of stock at the end of September. It was followed by Samlyn Capital with a $256.7 million position. Other investors bullish on the company included Tekne Capital Management, Steadfast Capital Management, and Point72 Asset Management. In terms of the portfolio weights assigned to each position Tekne Capital Management allocated the biggest weight to PagSeguro Digital Ltd. (NYSE:PAGS), around 14.13% of its 13F portfolio. Sylebra Capital Management is also relatively very bullish on the stock, setting aside 12.1 percent of its 13F equity portfolio to PAGS.

Consequently, some big names have been driving this bullishness. Point72 Asset Management, managed by Steve Cohen, established the largest position in PagSeguro Digital Ltd. (NYSE:PAGS). Point72 Asset Management had $45.5 million invested in the company at the end of the quarter. Louis Bacon's Moore Global Investments also made a $16.2 million investment in the stock during the quarter. The following funds were also among the new PAGS investors: Renaissance Technologies, Qing Li's Sciencast Management, and Adam Usdan's Trellus Management Company.

Let's now review hedge fund activity in other stocks similar to PagSeguro Digital Ltd. (NYSE:PAGS). We will take a look at Expedia Group Inc (NASDAQ:EXPE), Brown & Brown, Inc. (NYSE:BRO), Open Text Corporation (NASDAQ:OTEX), Ceridian HCM Holding Inc. (NYSE:CDAY), Shinhan Financial Group Co., Ltd. (NYSE:SHG), Ulta Beauty, Inc. (NASDAQ:ULTA), and Kirkland Lake Gold Ltd. (NYSE:KL). This group of stocks' market valuations resemble PAGS's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EXPE,61,3109490,20 BRO,24,633665,-2 OTEX,18,319502,0 CDAY,30,2098612,6 SHG,2,5215,-3 ULTA,38,662360,-8 KL,23,603164,-5 Average,28,1061715,1.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $1062 million. That figure was $1013 million in PAGS's case. Expedia Group Inc (NASDAQ:EXPE) is the most popular stock in this table. On the other hand Shinhan Financial Group Co., Ltd. (NYSE:SHG) is the least popular one with only 2 bullish hedge fund positions. PagSeguro Digital Ltd. (NYSE:PAGS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for PAGS is 48.1. 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. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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 21.3% in 2020 through September 25th and surpassed the market by 17.7 percentage points. Unfortunately PAGS wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); PAGS investors were disappointed as the stock returned 5.5% since Q2 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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

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