Is Permian Basin Royalty Trust (NYSE:PBT) a good stock to buy 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 have 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.
Hedge fund interest in Permian Basin Royalty Trust (NYSE:PBT) shares was flat at the end of last quarter. This is usually a negative indicator. 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 Mayville Engineering Company, Inc. (NYSE:MEC), Pulse Biosciences, Inc (NASDAQ:PLSE), and Weyco Group, Inc. (NASDAQ:WEYS) to gather more data points. Our calculations also showed that PBT isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
[caption id="attachment_673876" align="aligncenter" width="1613"] John Overdeck of Two Sigma Advisors[/caption]
In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. Now we're going to view the fresh hedge fund action regarding Permian Basin Royalty Trust (NYSE:PBT).
How have hedgies been trading Permian Basin Royalty Trust (NYSE:PBT)?
At the end of the second quarter, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 7 hedge funds with a bullish position in PBT a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Permian Basin Royalty Trust (NYSE:PBT) was held by Royce & Associates, which reported holding $5.3 million worth of stock at the end of March. It was followed by Horizon Asset Management with a $2.8 million position. Other investors bullish on the company included Arrowstreet Capital, Renaissance Technologies, and Two Sigma Advisors.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the second quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's now review hedge fund activity in other stocks similar to Permian Basin Royalty Trust (NYSE:PBT). These stocks are Mayville Engineering Company, Inc. (NYSE:MEC), Pulse Biosciences, Inc (NASDAQ:PLSE), Weyco Group, Inc. (NASDAQ:WEYS), and Superior Group of Companies, Inc. (NASDAQ:SGC). This group of stocks' market caps match PBT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MEC,9,21778,9 PLSE,1,198,0 WEYS,3,16385,0 SGC,2,4585,-3 Average,3.75,10737,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 3.75 hedge funds with bullish positions and the average amount invested in these stocks was $11 million. That figure was $10 million in PBT's case. Mayville Engineering Company, Inc. (NYSE:MEC) is the most popular stock in this table. On the other hand Pulse Biosciences, Inc (NASDAQ:PLSE) is the least popular one with only 1 bullish hedge fund positions. Permian Basin Royalty Trust (NYSE:PBT) is not the most popular stock in this group but hedge fund interest is still above average. 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately PBT wasn't nearly as popular as these 20 stocks and hedge funds that were betting on PBT were disappointed as the stock returned -12.6% during the third quarter 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.
Disclosure: None. This article was originally published at Insider Monkey.