At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Penumbra Inc (NYSE:PEN) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Hedge fund interest in Penumbra Inc (NYSE:PEN) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that PEN isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Ollie’s Bargain Outlet Holdings Inc (NASDAQ:OLLI), United Microelectronics Corp (NYSE:UMC), and Cree, Inc. (NASDAQ:CREE) to gather more data points. Our calculations also showed that PEN isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 56 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.
Gavin Saitowitz of Prelude Capital
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 are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind we’re going to analyze the key hedge fund action regarding Penumbra Inc (NYSE:PEN).
How have hedgies been trading Penumbra Inc (NYSE:PEN)?
At second quarter’s end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards PEN over the last 20 quarters. 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, Generation Investment Management was the largest shareholder of Penumbra Inc (NYSE:PEN), with a stake worth $130.5 million reported as of the end of September. Trailing Generation Investment Management was Rock Springs Capital Management, which amassed a stake valued at $37 million. Citadel Investment Group, Partner Fund Management, and Columbus Circle Investors 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 Partner Fund Management allocated the biggest weight to Penumbra Inc (NYSE:PEN), around 1.03% of its 13F portfolio. Rock Springs Capital Management is also relatively very bullish on the stock, earmarking 1.02 percent of its 13F equity portfolio to PEN.
Due to the fact that Penumbra Inc (NYSE:PEN) has witnessed declining sentiment from the smart money, it’s safe to say that there exists a select few money managers that slashed their positions entirely last quarter. It’s worth mentioning that Phill Gross and Robert Atchinson’s Adage Capital Management said goodbye to the biggest stake of all the hedgies watched by Insider Monkey, totaling an estimated $16.1 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also dumped its stock, about $10.7 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks similar to Penumbra Inc (NYSE:PEN). We will take a look at Ollie’s Bargain Outlet Holdings Inc (NASDAQ:OLLI), United Microelectronics Corp (NYSE:UMC), Cree, Inc. (NASDAQ:CREE), Continental Resources, Inc. (NYSE:CLR), Pan American Silver Corp. (NASDAQ:PAAS), Williams-Sonoma, Inc. (NYSE:WSM), and Proofpoint Inc (NASDAQ:PFPT). This group of stocks’ market values are similar to PEN’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| OLLI | 24 | 179330 | 5 |
| UMC | 11 | 110335 | -4 |
| CREE | 17 | 597780 | 1 |
| CLR | 23 | 153030 | -3 |
| PAAS | 28 | 590941 | -2 |
| WSM | 27 | 457653 | 1 |
| PFPT | 35 | 488381 | 8 |
| Average | 23.6 | 368207 | 0.9 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.6 hedge funds with bullish positions and the average amount invested in these stocks was $368 million. That figure was $263 million in PEN’s case. Proofpoint Inc (NASDAQ:PFPT) is the most popular stock in this table. On the other hand United Microelectronics Corp (NYSE:UMC) is the least popular one with only 11 bullish hedge fund positions. Penumbra Inc (NYSE:PEN) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for PEN is 25. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately PEN wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); PEN investors were disappointed as the stock returned 8.7% in the third 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.
