At Insider Monkey, we pore over the filings of nearly 750 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of September 30. In this article, we will use that wealth of knowledge to determine whether or not Pinterest, Inc. (NYSE:PINS) makes for a good investment right now.
Pinterest, Inc. (NYSE:PINS) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 31 hedge funds' portfolios at the end of September. 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 Xylem Inc (NYSE:XYL), Discovery, Inc. (NASDAQ:DISCA), and Broadridge Financial Solutions, Inc. (NYSE:BR) to gather more data points. Our calculations also showed that PINS isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). 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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_681361" align="aligncenter" width="473"] Glen Kacher of Light Street Capital[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to take a gander at the fresh hedge fund action encompassing Pinterest, Inc. (NYSE:PINS).
What have hedge funds been doing with Pinterest, Inc. (NYSE:PINS)?
At Q3's end, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 0 hedge funds with a bullish position in PINS 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 Pinterest, Inc. (NYSE:PINS) was held by Valiant Capital, which reported holding $716.3 million worth of stock at the end of September. It was followed by SQN Investors with a $54.5 million position. Other investors bullish on the company included Polar Capital, Light Street Capital, and ThornTree Capital Partners. In terms of the portfolio weights assigned to each position Valiant Capital allocated the biggest weight to Pinterest, Inc. (NYSE:PINS), around 39.03% of its portfolio. ThornTree Capital Partners is also relatively very bullish on the stock, earmarking 9.37 percent of its 13F equity portfolio to PINS.
Judging by the fact that Pinterest, Inc. (NYSE:PINS) has faced a decline in interest from hedge fund managers, we can see that there exists a select few funds that decided to sell off their positions entirely by the end of the third quarter. It's worth mentioning that Dan Loeb's Third Point dropped the biggest investment of all the hedgies tracked by Insider Monkey, totaling an estimated $36.9 million in stock. James Crichton's fund, Hitchwood Capital Management, also cut its stock, about $29.9 million worth. These transactions are interesting, as aggregate 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 Pinterest, Inc. (NYSE:PINS). We will take a look at Xylem Inc (NYSE:XYL), Discovery, Inc. (NASDAQ:DISCA), Broadridge Financial Solutions, Inc. (NYSE:BR), and Seagate Technology plc (NASDAQ:STX). This group of stocks' market valuations match PINS's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position XYL,19,524367,0 DISCA,26,418972,2 BR,27,312931,6 STX,26,2311475,3 Average,24.5,891936,2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $892 million. That figure was $980 million in PINS's case. Broadridge Financial Solutions, Inc. (NYSE:BR) is the most popular stock in this table. On the other hand Xylem Inc (NYSE:XYL) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Pinterest, Inc. (NYSE:PINS) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately PINS wasn't nearly as popular as these 20 stocks and hedge funds that were betting on PINS were disappointed as the stock returned -26.4% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.