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Proto Labs Inc (PRLB): Are Hedge Funds Right About This Stock?

Debasis Saha

Is Proto Labs Inc (NYSE:PRLB) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Proto Labs Inc (NYSE:PRLB) was in 8 hedge funds' portfolios at the end of September. PRLB investors should pay attention to a decrease in hedge fund interest recently. There were 9 hedge funds in our database with PRLB positions at the end of the previous quarter. 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 below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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.

[caption id="attachment_27480" align="alignnone" width="600"] Israel Englander of Millennium Management[/caption]

Izzy Englander of MILLENNIUM MANAGEMENT

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. We're going to analyze the fresh hedge fund action encompassing Proto Labs Inc (NYSE:PRLB).

Hedge fund activity in Proto Labs Inc (NYSE:PRLB)

At the end of the third quarter, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in PRLB over the last 17 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is PRLB A Good Stock To Buy?

The largest stake in Proto Labs Inc (NYSE:PRLB) was held by Millennium Management, which reported holding $4.8 million worth of stock at the end of September. It was followed by Royce & Associates with a $4.2 million position. Other investors bullish on the company included D E Shaw, Renaissance Technologies, and Maverick Capital. In terms of the portfolio weights assigned to each position CSat Investment Advisory allocated the biggest weight to Proto Labs Inc (NYSE:PRLB), around 0.05% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, setting aside 0.04 percent of its 13F equity portfolio to PRLB.

Seeing as Proto Labs Inc (NYSE:PRLB) has experienced bearish sentiment from the aggregate hedge fund industry, we can see that there is a sect of funds that elected to cut their entire stakes heading into Q4. It's worth mentioning that Noam Gottesman's GLG Partners dumped the largest stake of the 750 funds followed by Insider Monkey, comprising about $6.1 million in stock. Dmitry Balyasny's fund, Balyasny Asset Management, also cut its stock, about $1.1 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds heading into Q4.

Let's go over hedge fund activity in other stocks similar to Proto Labs Inc (NYSE:PRLB). These stocks are El Paso Electric Company (NYSE:EE), Murphy USA Inc. (NYSE:MUSA), AMC Networks Inc (NASDAQ:AMCX), and American Eagle Outfitters Inc. (NYSE:AEO). This group of stocks' market valuations match PRLB's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EE,13,387516,-3 MUSA,19,224363,0 AMCX,22,275908,3 AEO,28,359428,7 Average,20.5,311804,1.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $312 million. That figure was $15 million in PRLB's case. American Eagle Outfitters Inc. (NYSE:AEO) is the most popular stock in this table. On the other hand El Paso Electric Company (NYSE:EE) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Proto Labs Inc (NYSE:PRLB) is even less popular than EE. Hedge funds dodged a bullet by taking a bearish stance towards PRLB. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately PRLB wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); PRLB investors were disappointed as the stock returned -5.1% during the fourth quarter (through the end of November) 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 so far in Q4.

Disclosure: None. This article was originally published at Insider Monkey.

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