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In this article you are going to find out whether hedge funds think Proto Labs Inc (NYSE:PRLB) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Is PRLB a good stock to buy now? The best stock pickers were cutting their exposure. The number of bullish hedge fund bets fell by 1 in recent months. Proto Labs Inc (NYSE:PRLB) was in 16 hedge funds' portfolios at the end of September. The all time high for this statistic is 17. Our calculations also showed that PRLB 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). There were 17 hedge funds in our database with PRLB holdings at the end of June.
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Ken Griffin of Citadel Investment Group
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. With all of this in mind we're going to check out the latest hedge fund action regarding Proto Labs Inc (NYSE:PRLB).
Do Hedge Funds Think PRLB Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the second quarter of 2020. By comparison, 10 hedge funds held shares or bullish call options in PRLB a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, PEAK6 Capital Management was the largest shareholder of Proto Labs Inc (NYSE:PRLB), with a stake worth $12.7 million reported as of the end of September. Trailing PEAK6 Capital Management was Citadel Investment Group, which amassed a stake valued at $6.4 million. Motley Fool Asset Management, D E Shaw, and D E Shaw 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 Motley Fool Asset Management allocated the biggest weight to Proto Labs Inc (NYSE:PRLB), around 0.53% of its 13F portfolio. Sciencast Management is also relatively very bullish on the stock, earmarking 0.22 percent of its 13F equity portfolio to PRLB.
Because Proto Labs Inc (NYSE:PRLB) has witnessed declining sentiment from the aggregate hedge fund industry, we can see that there exists a select few hedge funds who sold off their positions entirely heading into Q4. At the top of the heap, Matthew Hulsizer's PEAK6 Capital Management said goodbye to the biggest stake of the 750 funds watched by Insider Monkey, worth about $2.4 million in stock. Peter Muller's fund, PDT Partners, also said goodbye to its stock, about $1 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 1 funds heading into Q4.
Let's also examine hedge fund activity in other stocks similar to Proto Labs Inc (NYSE:PRLB). We will take a look at Inspire Medical Systems, Inc. (NYSE:INSP), UFP Industries, Inc. (NASDAQ:UFPI), Semtech Corporation (NASDAQ:SMTC), Alamos Gold Inc (NYSE:AGI), Foot Locker, Inc. (NYSE:FL), Sogou Inc. (NYSE:SOGO), and LivePerson, Inc. (NASDAQ:LPSN). This group of stocks' market caps match PRLB's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position INSP,25,462980,1 UFPI,20,93473,2 SMTC,21,151214,-4 AGI,15,403593,-1 FL,26,297082,-3 SOGO,15,139405,10 LPSN,26,201096,3 Average,21.1,249835,1.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.1 hedge funds with bullish positions and the average amount invested in these stocks was $250 million. That figure was $21 million in PRLB's case. Foot Locker, Inc. (NYSE:FL) is the most popular stock in this table. On the other hand Alamos Gold Inc (NYSE:AGI) is the least popular one with only 15 bullish hedge fund positions. Proto Labs Inc (NYSE:PRLB) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for PRLB is 36.8. 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 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 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on PRLB as the stock returned 17.4% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.