Hedge Funds Are Betting On Packaging Corporation Of America (PKG)

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Packaging Corporation Of America (NYSE:PKG).

Is Packaging Corporation Of America (NYSE:PKG) an excellent investment now? The smart money was becoming hopeful. The number of long hedge fund positions went up by 2 lately. Packaging Corporation Of America (NYSE:PKG) was in 31 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 33. Our calculations also showed that PKG isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. 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 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

Alex Litowitz Magnetar Capital

Alec Litowitz of Magnetar Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind we’re going to take a peek at the new hedge fund action encompassing Packaging Corporation Of America (NYSE:PKG).

Do Hedge Funds Think PKG Is A Good Stock To Buy Now?

At the end of the second quarter, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from the previous quarter. The graph below displays the number of hedge funds with bullish position in PKG over the last 24 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Packaging Corporation Of America (NYSE:PKG) was held by Millennium Management, which reported holding $174 million worth of stock at the end of June. It was followed by AQR Capital Management with a $100.2 million position. Other investors bullish on the company included Balyasny Asset Management, D E Shaw, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Appian Way Asset Management allocated the biggest weight to Packaging Corporation Of America (NYSE:PKG), around 4.1% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, setting aside 0.33 percent of its 13F equity portfolio to PKG.

Now, some big names were leading the bulls’ herd. Point72 Asset Management, managed by Steve Cohen, created the biggest position in Packaging Corporation Of America (NYSE:PKG). Point72 Asset Management had $17 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $9 million position during the quarter. The other funds with brand new PKG positions are Andrew Byington’s Appian Way Asset Management, John Overdeck and David Siegel’s Two Sigma Advisors, and Alec Litowitz and Ross Laser’s Magnetar Capital.

Let’s check out hedge fund activity in other stocks similar to Packaging Corporation Of America (NYSE:PKG). We will take a look at Graco Inc. (NYSE:GGG), DaVita Inc (NYSE:DVA), The Interpublic Group of Companies Inc (NYSE:IPG), Nordson Corporation (NASDAQ:NDSN), Vail Resorts, Inc. (NYSE:MTN), The Gap Inc. (NYSE:GPS), and FactSet Research Systems Inc. (NYSE:FDS). This group of stocks’ market caps match PKG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GGG 24 255419 -1
DVA 39 5131921 5
IPG 31 647813 2
NDSN 34 311616 8
MTN 40 883541 4
GPS 43 910661 1
FDS 28 490774 -2
Average 34.1 1233106 2.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.1 hedge funds with bullish positions and the average amount invested in these stocks was $1233 million. That figure was $445 million in PKG’s case. The Gap Inc. (NYSE:GPS) is the most popular stock in this table. On the other hand Graco Inc. (NYSE:GGG) is the least popular one with only 24 bullish hedge fund positions. Packaging Corporation Of America (NYSE:PKG) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for PKG is 53.6. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24.9% in 2021 through October 15th and surpassed the market again by 4.5 percentage points. Unfortunately PKG wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); PKG investors were disappointed as the stock returned -0.6% since the end of June (through 10/15) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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