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Is Patterson Companies, Inc. (NASDAQ:PDCO) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Is PDCO a good stock to buy now? Patterson Companies, Inc. (NASDAQ:PDCO) was in 18 hedge funds' portfolios at the end of September. The all time high for this statistic is 29. PDCO investors should pay attention to a decrease in enthusiasm from smart money of late. There were 22 hedge funds in our database with PDCO holdings at the end of June. Our calculations also showed that PDCO 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.
Donald Sussman of Paloma Partners
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. Keeping this in mind let's take a look at the recent hedge fund action encompassing Patterson Companies, Inc. (NASDAQ:PDCO).
Do Hedge Funds Think PDCO Is A Good Stock To Buy Now?
At the end of September, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in PDCO over the last 21 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, GAMCO Investors was the largest shareholder of Patterson Companies, Inc. (NASDAQ:PDCO), with a stake worth $27.7 million reported as of the end of September. Trailing GAMCO Investors was Renaissance Technologies, which amassed a stake valued at $10.3 million. Arrowstreet Capital, Royce & Associates, and Endurant 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 Endurant Capital Management allocated the biggest weight to Patterson Companies, Inc. (NASDAQ:PDCO), around 1.16% of its 13F portfolio. Tamarack Capital Management is also relatively very bullish on the stock, designating 0.74 percent of its 13F equity portfolio to PDCO.
Because Patterson Companies, Inc. (NASDAQ:PDCO) has experienced declining sentiment from the entirety of the hedge funds we track, logic holds that there exists a select few fund managers that slashed their entire stakes heading into Q4. It's worth mentioning that Jeffrey Bronchick's Cove Street Capital sold off the largest investment of all the hedgies tracked by Insider Monkey, totaling close to $12.2 million in stock, and Thyra Zerhusen's Fairpointe Capital was right behind this move, as the fund dropped about $6.1 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 4 funds heading into Q4.
Let's check out hedge fund activity in other stocks similar to Patterson Companies, Inc. (NASDAQ:PDCO). These stocks are ViaSat, Inc. (NASDAQ:VSAT), Cushman & Wakefield plc (NYSE:CWK), Avista Corp (NYSE:AVA), Fabrinet (NYSE:FN), Trinity Industries, Inc. (NYSE:TRN), Nelnet, Inc. (NYSE:NNI), and Wintrust Financial Corporation (NASDAQ:WTFC). This group of stocks' market caps are closest to PDCO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VSAT,30,907647,7 CWK,12,87064,-5 AVA,20,74564,-1 FN,17,74880,-6 TRN,23,766000,-2 NNI,13,133382,1 WTFC,20,113331,-3 Average,19.3,308124,-1.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.3 hedge funds with bullish positions and the average amount invested in these stocks was $308 million. That figure was $83 million in PDCO's case. ViaSat, Inc. (NASDAQ:VSAT) is the most popular stock in this table. On the other hand Cushman & Wakefield plc (NYSE:CWK) is the least popular one with only 12 bullish hedge fund positions. Patterson Companies, Inc. (NASDAQ:PDCO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for PDCO is 36.3. 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. 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 still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on PDCO as the stock returned 30.8% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.