How do you pick the next stock to invest in? One way would be to spend hours 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 PRA Health Sciences Inc (NASDAQ:PRAH).
Why do we pay any attention at all to hedge fund sentiment? 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 market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to take a look at the key hedge fund action surrounding PRA Health Sciences Inc (NASDAQ:PRAH).
How are hedge funds trading PRA Health Sciences Inc (NASDAQ:PRAH)?
At Q4's end, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the previous quarter. On the other hand, there were a total of 25 hedge funds with a bullish position in PRAH a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
The largest stake in PRA Health Sciences Inc (NASDAQ:PRAH) was held by AQR Capital Management, which reported holding $112.9 million worth of stock at the end of September. It was followed by Millennium Management with a $61 million position. Other investors bullish on the company included Polar Capital, Rock Springs Capital Management, and Redmile Group.
Judging by the fact that PRA Health Sciences Inc (NASDAQ:PRAH) has witnessed a decline in interest from the entirety of the hedge funds we track, logic holds that there lies a certain "tier" of hedge funds who sold off their positions entirely in the third quarter. It's worth mentioning that Chuck Royce's Royce & Associates dumped the biggest stake of the "upper crust" of funds followed by Insider Monkey, comprising close to $3.2 million in stock, and Michael Platt and William Reeves's BlueCrest Capital Mgmt. was right behind this move, as the fund dropped about $3.1 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 3 funds in the third quarter.
Let's go over hedge fund activity in other stocks similar to PRA Health Sciences Inc (NASDAQ:PRAH). We will take a look at USG Corporation (NYSE:USG), Hill-Rom Holdings, Inc. (NYSE:HRC), Sabre Corporation (NASDAQ:SABR), and Post Holdings Inc (NYSE:POST). This group of stocks' market caps are similar to PRAH's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position USG,20,2262197,-1 HRC,29,650301,5 SABR,24,276021,-7 POST,28,1337378,-1 Average,25.25,1131474,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $1131 million. That figure was $298 million in PRAH's case. Hill-Rom Holdings, Inc. (NYSE:HRC) is the most popular stock in this table. On the other hand USG Corporation (NYSE:USG) is the least popular one with only 20 bullish hedge fund positions. PRA Health Sciences Inc (NASDAQ:PRAH) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that the top 15 most popular stocks among hedge funds returned 21.3% year-to-date through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. A few hedge funds were also right about betting on PRAH, though not to the same extent, as the stock returned 16.6% and outperformed the market by a tiny margin.
Disclosure: None. This article was originally published at Insider Monkey.