Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in Q4 of 2018 due to various reasons. Nevertheless, the data show elite investors' consensus picks have done well on average over the long-term. The top 20 stocks among hedge funds beat the S&P 500 Index ETFs by nearly 10 percentage points during the first 11 months of 2019. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at Portfolio Recovery Associates, Inc. (NASDAQ:PRAA) from the perspective of those elite funds.
Is Portfolio Recovery Associates, Inc. (NASDAQ:PRAA) a bargain? Money managers are becoming more confident. The number of bullish hedge fund bets increased by 2 lately. Our calculations also showed that PRAA isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). PRAA was in 10 hedge funds' portfolios at the end of the third quarter of 2019. There were 8 hedge funds in our database with PRAA holdings at the end of the previous quarter. 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_746893" align="aligncenter" width="1613"] Paul Marshall of Marshall Wace[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. Let's take a look at the recent hedge fund action surrounding Portfolio Recovery Associates, Inc. (NASDAQ:PRAA).
Hedge fund activity in Portfolio Recovery Associates, Inc. (NASDAQ:PRAA)
Heading into the fourth quarter of 2019, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of 25% from one quarter earlier. By comparison, 7 hedge funds held shares or bullish call options in PRAA 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.
Among these funds, D E Shaw held the most valuable stake in Portfolio Recovery Associates, Inc. (NASDAQ:PRAA), which was worth $13.3 million at the end of the third quarter. On the second spot was Water Street Capital which amassed $8.3 million worth of shares. Citadel Investment Group, HBK Investments, and Renaissance Technologies 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 Water Street Capital allocated the biggest weight to Portfolio Recovery Associates, Inc. (NASDAQ:PRAA), around 0.64% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, earmarking 0.4 percent of its 13F equity portfolio to PRAA.
Now, key hedge funds have jumped into Portfolio Recovery Associates, Inc. (NASDAQ:PRAA) headfirst. Quantinno Capital, managed by Hoon Kim, created the most outsized position in Portfolio Recovery Associates, Inc. (NASDAQ:PRAA). Quantinno Capital had $0.6 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also made a $0.4 million investment in the stock during the quarter. The following funds were also among the new PRAA investors: Benjamin A. Smith's Laurion Capital Management and Paul Marshall and Ian Wace's Marshall Wace.
Let's now take a look at hedge fund activity in other stocks similar to Portfolio Recovery Associates, Inc. (NASDAQ:PRAA). These stocks are Harmony Gold Mining Co. (NYSE:HMY), Eagle Bancorp, Inc. (NASDAQ:EGBN), Meritor Inc (NYSE:MTOR), and Apellis Pharmaceuticals, Inc. (NASDAQ:APLS). This group of stocks' market values match PRAA's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HMY,10,88514,0 EGBN,15,38861,4 MTOR,23,262577,0 APLS,24,349532,7 Average,18,184871,2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $185 million. That figure was $34 million in PRAA's case. Apellis Pharmaceuticals, Inc. (NASDAQ:APLS) is the most popular stock in this table. On the other hand Harmony Gold Mining Co. (NYSE:HMY) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Portfolio Recovery Associates, Inc. (NASDAQ:PRAA) is even less popular than HMY. 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. A small number of hedge funds were also right about betting on PRAA, though not to the same extent, as the stock returned 8.4% during the fourth quarter (through 11/30) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.