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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 third 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 5 years and analyze what the smart money thinks of Phibro Animal Health Corp (NASDAQ:PAHC) based on that data.
Is PAHC a good stock to buy now? Hedge fund interest in Phibro Animal Health Corp (NASDAQ:PAHC) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that PAHC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). 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 IMAX Corporation (NYSE:IMAX), Limelight Networks, Inc. (NASDAQ:LLNW), and Hudson Ltd. (NYSE:HUD) to gather more data points.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Jeffrey Bronchick of Cove Street Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, 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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Now we're going to take a gander at the key hedge fund action encompassing Phibro Animal Health Corp (NASDAQ:PAHC).
Do Hedge Funds Think PAHC Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2020. On the other hand, there were a total of 18 hedge funds with a bullish position in PAHC a year ago. With hedgies' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
The largest stake in Phibro Animal Health Corp (NASDAQ:PAHC) was held by Renaissance Technologies, which reported holding $18.6 million worth of stock at the end of September. It was followed by Cove Street Capital with a $10.8 million position. Other investors bullish on the company included Millennium Management, GLG Partners, and D E Shaw. In terms of the portfolio weights assigned to each position Cove Street Capital allocated the biggest weight to Phibro Animal Health Corp (NASDAQ:PAHC), around 2.05% of its 13F portfolio. Factorial Partners is also relatively very bullish on the stock, earmarking 0.85 percent of its 13F equity portfolio to PAHC.
Because Phibro Animal Health Corp (NASDAQ:PAHC) has witnessed bearish sentiment from the smart money, it's safe to say that there were a few funds who sold off their entire stakes by the end of the third quarter. Interestingly, Roger Ibbotson's Zebra Capital Management sold off the biggest investment of the "upper crust" of funds monitored by Insider Monkey, comprising an estimated $0.4 million in stock. Chuck Royce's fund, Royce & Associates, also sold off its stock, about $0 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks similar to Phibro Animal Health Corp (NASDAQ:PAHC). We will take a look at IMAX Corporation (NYSE:IMAX), Limelight Networks, Inc. (NASDAQ:LLNW), Hudson Ltd. (NYSE:HUD), Nexa Resources S.A. (NYSE:NEXA), Cryolife Inc (NYSE:CRY), Matthews International Corp (NASDAQ:MATW), and NV5 Global Inc (NASDAQ:NVEE). This group of stocks' market caps are closest to PAHC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IMAX,18,71718,-1 LLNW,17,74271,-7 HUD,16,83748,-5 NEXA,2,2468,-2 CRY,12,57875,1 MATW,18,66097,0 NVEE,9,16322,2 Average,13.1,53214,-1.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.1 hedge funds with bullish positions and the average amount invested in these stocks was $53 million. That figure was $44 million in PAHC's case. IMAX Corporation (NYSE:IMAX) is the most popular stock in this table. On the other hand Nexa Resources S.A. (NYSE:NEXA) is the least popular one with only 2 bullish hedge fund positions. Phibro Animal Health Corp (NASDAQ:PAHC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PAHC is 67.1. 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 positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and beat the market again by 15.8 percentage points. Unfortunately PAHC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on PAHC were disappointed as the stock returned 5.8% since the end of September (through 12/14) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.