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In this article we will check out the progression of hedge fund sentiment towards PACCAR Inc (NASDAQ:PCAR) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is PCAR a good stock to buy? PACCAR Inc (NASDAQ:PCAR) has experienced an increase in support from the world's most elite money managers recently. PACCAR Inc (NASDAQ:PCAR) was in 34 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 38. There were 30 hedge funds in our database with PCAR positions at the end of the second quarter. Our calculations also showed that PCAR 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).
Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Joel Greenblatt of Gotham Asset Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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. Keeping this in mind we're going to analyze the recent hedge fund action regarding PACCAR Inc (NASDAQ:PCAR).
Do Hedge Funds Think PCAR Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PCAR over the last 21 quarters. With the smart money's capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
The largest stake in PACCAR Inc (NASDAQ:PCAR) was held by Holocene Advisors, which reported holding $87 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $70.4 million position. Other investors bullish on the company included AQR Capital Management, Millennium Management, and Adage Capital Management. In terms of the portfolio weights assigned to each position Arosa Capital Management allocated the biggest weight to PACCAR Inc (NASDAQ:PCAR), around 1.25% of its 13F portfolio. Holocene Advisors is also relatively very bullish on the stock, earmarking 0.66 percent of its 13F equity portfolio to PCAR.
Now, specific money managers have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the largest position in PACCAR Inc (NASDAQ:PCAR). Arrowstreet Capital had $27.8 million invested in the company at the end of the quarter. Alexander Mitchell's Scopus Asset Management also initiated a $21.2 million position during the quarter. The following funds were also among the new PCAR investors: Dmitry Balyasny's Balyasny Asset Management, Till Bechtolsheimer's Arosa Capital Management, and Joel Greenblatt's Gotham Asset Management.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as PACCAR Inc (NASDAQ:PCAR) but similarly valued. These stocks are The Allstate Corporation (NYSE:ALL), T. Rowe Price Group, Inc. (NASDAQ:TROW), Trane Technologies plc (NYSE:TT), PPG Industries, Inc. (NYSE:PPG), Best Buy Co., Inc. (NYSE:BBY), Match Group, Inc. (NASDAQ:MTCH), and Paychex, Inc. (NASDAQ:PAYX). This group of stocks' market values match PCAR's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALL,38,1246660,-8 TROW,34,348235,0 TT,37,831744,-3 PPG,36,230601,0 BBY,40,1195041,7 MTCH,61,2846837,22 PAYX,28,724599,-8 Average,39.1,1060531,1.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 39.1 hedge funds with bullish positions and the average amount invested in these stocks was $1061 million. That figure was $442 million in PCAR's case. Match Group, Inc. (NASDAQ:MTCH) is the most popular stock in this table. On the other hand Paychex, Inc. (NASDAQ:PAYX) is the least popular one with only 28 bullish hedge fund positions. PACCAR Inc (NASDAQ:PCAR) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for PCAR is 44.9. 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 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 33.3% in 2020 through December 18th and surpassed the market again by 16.4 percentage points. Unfortunately PCAR wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PCAR investors were disappointed as the stock returned 2% since the end of September (through 12/18) 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 most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.