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Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 817 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Pegasystems Inc. (NASDAQ:PEGA) in this article.
Is PEGA a good stock to buy? The smart money was getting more optimistic. The number of long hedge fund bets increased by 4 lately. Pegasystems Inc. (NASDAQ:PEGA) was in 32 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 33. Our calculations also showed that PEGA 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ricky Sandler of Eminence Capital
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. Now let's take a peek at the recent hedge fund action encompassing Pegasystems Inc. (NASDAQ:PEGA).
Do Hedge Funds Think PEGA Is A Good Stock To Buy Now?
At Q3's end, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from one quarter earlier. By comparison, 26 hedge funds held shares or bullish call options in PEGA a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Bares Capital Management held the most valuable stake in Pegasystems Inc. (NASDAQ:PEGA), which was worth $568.5 million at the end of the third quarter. On the second spot was Luxor Capital Group which amassed $376.1 million worth of shares. Cadian Capital, Praesidium Investment Management Company, and Dorsal 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 Bares Capital Management allocated the biggest weight to Pegasystems Inc. (NASDAQ:PEGA), around 12% of its 13F portfolio. Totem Point Management is also relatively very bullish on the stock, setting aside 10.79 percent of its 13F equity portfolio to PEGA.
Consequently, key money managers have jumped into Pegasystems Inc. (NASDAQ:PEGA) headfirst. Eminence Capital, managed by Ricky Sandler, established the most outsized position in Pegasystems Inc. (NASDAQ:PEGA). Eminence Capital had $36.2 million invested in the company at the end of the quarter. Stephen J. Errico's Locust Wood Capital Advisers also initiated a $13.8 million position during the quarter. The other funds with brand new PEGA positions are Phill Gross and Robert Atchinson's Adage Capital Management, Steve Zheng's Deepcurrents Investment Group, and Anthony S. Daffer's Provenire Capital.
Let's go over hedge fund activity in other stocks similar to Pegasystems Inc. (NASDAQ:PEGA). These stocks are NetApp Inc. (NASDAQ:NTAP), Lamb Weston Holdings, Inc. (NYSE:LW), UDR, Inc. (NYSE:UDR), Brookfield Renewable Partners L.P. (NYSE:BEP), WPP Plc (NASDAQ:WPP), PTC Inc (NASDAQ:PTC), and InterContinental Hotels Group PLC (NYSE:IHG). All of these stocks' market caps are similar to PEGA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NTAP,31,429263,6 LW,27,204303,2 UDR,26,353647,-3 BEP,17,250013,12 WPP,7,29329,-2 PTC,39,1342048,-1 IHG,7,11037,2 Average,22,374234,2.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $374 million. That figure was $1867 million in PEGA's case. PTC Inc (NASDAQ:PTC) is the most popular stock in this table. On the other hand WPP Plc (NASDAQ:WPP) is the least popular one with only 7 bullish hedge fund positions. Pegasystems Inc. (NASDAQ:PEGA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PEGA is 77.2. 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 33.3% in 2020 through December 18th and beat the market again by 16.4 percentage points. Unfortunately PEGA wasn't nearly as popular as these 20 stocks and hedge funds that were betting on PEGA were disappointed as the stock returned 10.2% 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 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.