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Did Hedge Funds Make The Right Call On PAE Incorporated (PAE) ?

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 PAE Incorporated (NASDAQ:PAE) and determine whether hedge funds had an edge regarding this stock.

PAE Incorporated (NASDAQ:PAE) has seen an increase in activity from the world’s largest hedge funds recently. Our calculations also showed that PAE isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 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.

Paul Glazer of Glazer Capital

Paul Glazer of Glazer Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let’s view the latest hedge fund action surrounding PAE Incorporated (NASDAQ:PAE).

Hedge fund activity in PAE Incorporated (NASDAQ:PAE)

Heading into the second quarter of 2020, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 75% from the previous quarter. By comparison, 16 hedge funds held shares or bullish call options in PAE a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is PAE A Good Stock To Buy?

According to Insider Monkey’s hedge fund database, Jeffrey Jacobowitz’s Simcoe Capital Management has the number one position in PAE Incorporated (NASDAQ:PAE), worth close to $24.2 million, corresponding to 7.4% of its total 13F portfolio. Sitting at the No. 2 spot is Peter S. Park of Park West Asset Management, with a $16.2 million position; 1.1% of its 13F portfolio is allocated to the stock. Some other members of the smart money with similar optimism encompass Anand Parekh’s Alyeska Investment Group, Traci Lerner’s Chescapmanager LLC and Steven Clark’s Omni Partners. In terms of the portfolio weights assigned to each position Simcoe Capital Management allocated the biggest weight to PAE Incorporated (NASDAQ:PAE), around 7.41% of its 13F portfolio. Element Capital Management is also relatively very bullish on the stock, dishing out 4.59 percent of its 13F equity portfolio to PAE.

As industrywide interest jumped, key hedge funds were leading the bulls’ herd. Simcoe Capital Management, managed by Jeffrey Jacobowitz, initiated the biggest position in PAE Incorporated (NASDAQ:PAE). Simcoe Capital Management had $24.2 million invested in the company at the end of the quarter. Peter S. Park’s Park West Asset Management also made a $16.2 million investment in the stock during the quarter. The following funds were also among the new PAE investors: Anand Parekh’s Alyeska Investment Group, Traci Lerner’s Chescapmanager LLC, and Steven Clark’s Omni Partners.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as PAE Incorporated (NASDAQ:PAE) but similarly valued. These stocks are BRP Group, Inc. (NASDAQ:BRP), OraSure Technologies, Inc. (NASDAQ:OSUR), GMS Inc. (NYSE:GMS), and Atlas Air Worldwide Holdings, Inc. (NASDAQ:AAWW). This group of stocks’ market values match PAE’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BRP 2 9815 -6
OSUR 19 96477 4
GMS 16 73933 -1
AAWW 17 57222 2
Average 13.5 59362 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $59 million. That figure was $124 million in PAE’s case. OraSure Technologies, Inc. (NASDAQ:OSUR) is the most popular stock in this table. On the other hand BRP Group, Inc. (NASDAQ:BRP) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks PAE Incorporated (NASDAQ:PAE) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 18.6% in 2020 through July 27th but still managed to beat the market by 17.1 percentage points. Hedge funds were also right about betting on PAE, though not to the same extent, as the stock returned 28.7% since Q1 and outperformed the market as well.

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