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How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding The Children's Place Inc. (NASDAQ:PLCE).
Is PLCE stock a buy? The smart money was buying. The number of long hedge fund positions went up by 8 lately. The Children's Place Inc. (NASDAQ:PLCE) was in 24 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 29. Our calculations also showed that PLCE isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).
Today there are plenty of tools shareholders employ to size up their stock investments. A duo of the best tools are hedge fund and insider trading activity. We have shown that, historically, those who follow the top picks of the top money managers can outpace the market by a superb margin (see the details here). Also, our monthly newsletter's portfolio of long stock picks returned 197% since March 2017 (through March 2021) and beat the S&P 500 Index by 124 percentage points. You can download a sample issue of this newsletter on our website .
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. 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 review the new hedge fund action encompassing The Children's Place Inc. (NASDAQ:PLCE).
Do Hedge Funds Think PLCE Is A Good Stock To Buy Now?
At Q4's end, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 50% from one quarter earlier. By comparison, 25 hedge funds held shares or bullish call options in PLCE 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.
Among these funds, D E Shaw held the most valuable stake in The Children's Place Inc. (NASDAQ:PLCE), which was worth $38.3 million at the end of the fourth quarter. On the second spot was Arrowstreet Capital which amassed $18.2 million worth of shares. Balyasny Asset Management, Renaissance Technologies, and Point72 Asset 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 MIK Capital allocated the biggest weight to The Children's Place Inc. (NASDAQ:PLCE), around 0.51% of its 13F portfolio. Shellback Capital is also relatively very bullish on the stock, designating 0.48 percent of its 13F equity portfolio to PLCE.
As one would reasonably expect, some big names have been driving this bullishness. Nantahala Capital Management, managed by Wilmot B. Harkey and Daniel Mack, assembled the largest position in The Children's Place Inc. (NASDAQ:PLCE). Nantahala Capital Management had $12.6 million invested in the company at the end of the quarter. Doug Gordon, Jon Hilsabeck and Don Jabro's Shellback Capital also made a $5.9 million investment in the stock during the quarter. The following funds were also among the new PLCE investors: George McCabe's Portolan Capital Management, Paul Marshall and Ian Wace's Marshall Wace LLP, and Anthony Joseph Vaccarino's North Fourth Asset Management.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as The Children's Place Inc. (NASDAQ:PLCE) but similarly valued. We will take a look at Westport Fuel Systems Inc. (NASDAQ:WPRT), Quanex Building Products Corporation (NYSE:NX), America's Car-Mart, Inc. (NASDAQ:CRMT), Glatfelter Corp (NYSE:GLT), Esperion Therapeutics (NASDAQ:ESPR), Digimarc Corp (NASDAQ:DMRC), and Curis, Inc. (NASDAQ:CRIS). All of these stocks' market caps match PLCE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WPRT,13,45603,5 NX,13,72984,-3 CRMT,11,70023,2 GLT,7,21631,-1 ESPR,16,135831,-1 DMRC,10,38443,4 CRIS,28,344238,18 Average,14,104108,3.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $104 million. That figure was $169 million in PLCE's case. Curis, Inc. (NASDAQ:CRIS) is the most popular stock in this table. On the other hand Glatfelter Corp (NYSE:GLT) is the least popular one with only 7 bullish hedge fund positions. The Children's Place Inc. (NASDAQ:PLCE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PLCE is 75.3. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and still beat the market by 0.9 percentage points. Hedge funds were also right about betting on PLCE as the stock returned 49.4% since the end of Q4 (through 4/19) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.