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Did Hedge Funds Make The Right Call On Photronics, Inc. (PLAB) ?

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 Photronics, Inc. (NASDAQ:PLAB) and determine whether hedge funds had an edge regarding this stock.

Photronics, Inc. (NASDAQ:PLAB) has seen an increase in hedge fund interest of late. Our calculations also showed that PLAB 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Keeping this in mind let’s analyze the recent hedge fund action encompassing Photronics, Inc. (NASDAQ:PLAB).

How are hedge funds trading Photronics, Inc. (NASDAQ:PLAB)?

At the end of the first quarter, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from the fourth quarter of 2019. By comparison, 13 hedge funds held shares or bullish call options in PLAB a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Renaissance Technologies, holds the largest position in Photronics, Inc. (NASDAQ:PLAB). Renaissance Technologies has a $20.2 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Sitting at the No. 2 spot is Royce & Associates, managed by Chuck Royce, which holds a $10.1 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other peers with similar optimism comprise Carson Yost’s Yost Capital Management, Jeff Osher’s No Street Capital and Paul Marshall and Ian Wace’s Marshall Wace LLP. In terms of the portfolio weights assigned to each position Yost Capital Management allocated the biggest weight to Photronics, Inc. (NASDAQ:PLAB), around 8.99% of its 13F portfolio. Divisar Capital is also relatively very bullish on the stock, setting aside 2.27 percent of its 13F equity portfolio to PLAB.

Now, specific money managers have been driving this bullishness. Yost Capital Management, managed by Carson Yost, assembled the biggest position in Photronics, Inc. (NASDAQ:PLAB). Yost Capital Management had $9.5 million invested in the company at the end of the quarter. Jeff Osher’s No Street Capital also initiated a $8.1 million position during the quarter. The following funds were also among the new PLAB investors: Mark Coe’s Intrinsic Edge Capital, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, and Greg Eisner’s Engineers Gate Manager.

Let’s now review hedge fund activity in other stocks similar to Photronics, Inc. (NASDAQ:PLAB). These stocks are PAE Incorporated (NASDAQ:PAE), BRP Group, Inc. (NASDAQ:BRP), OraSure Technologies, Inc. (NASDAQ:OSUR), and GMS Inc. (NYSE:GMS). All of these stocks’ market caps resemble PLAB’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PAE 21 124295 9
BRP 2 9815 -6
OSUR 19 96477 4
GMS 16 73933 -1
Average 14.5 76130 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $76 million. That figure was $90 million in PLAB’s case. PAE Incorporated (NASDAQ:PAE) 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 Photronics, Inc. (NASDAQ:PLAB) 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately PLAB wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on PLAB were disappointed as the stock returned 8.5% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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