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Hedge Funds Are Buying Palo Alto Networks Inc (PANW)

A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended June 28, so let’s proceed with the discussion of the hedge fund sentiment on Palo Alto Networks Inc (NYSE:PANW).

Is Palo Alto Networks Inc (NYSE:PANW) undervalued? Investors who are in the know are taking an optimistic view. The number of bullish hedge fund bets rose by 1 in recent months. Our calculations also showed that PANW isn’t among the 30 most popular stocks among hedge funds (see the video below). PANW was in 45 hedge funds’ portfolios at the end of June. There were 44 hedge funds in our database with PANW positions at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

PANW_oct2019

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to check out the key hedge fund action regarding Palo Alto Networks Inc (NYSE:PANW).

What have hedge funds been doing with Palo Alto Networks Inc (NYSE:PANW)?

At Q2’s end, a total of 45 of the hedge funds tracked by Insider Monkey were long this stock, a change of 2% from one quarter earlier. By comparison, 42 hedge funds held shares or bullish call options in PANW 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.

Jane Mendillo

The largest stake in Palo Alto Networks Inc (NYSE:PANW) was held by Renaissance Technologies, which reported holding $1034 million worth of stock at the end of March. It was followed by Cadian Capital with a $268.6 million position. Other investors bullish on the company included Senator Investment Group, D E Shaw, and Hound Partners.

With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Senator Investment Group, managed by Doug Silverman and Alexander Klabin, created the biggest position in Palo Alto Networks Inc (NYSE:PANW). Senator Investment Group had $203.8 million invested in the company at the end of the quarter. Jonathan Auerbach’s Hound Partners also initiated a $128.1 million position during the quarter. The other funds with new positions in the stock are Brett Barakett’s Tremblant Capital, Hari Hariharan’s NWI Management, and Jane Mendillo’s Harvard Management Co.

Let’s go over hedge fund activity in other stocks similar to Palo Alto Networks Inc (NYSE:PANW). These stocks are The Clorox Company (NYSE:CLX), Essex Property Trust Inc (NYSE:ESS), Match Group, Inc. (NASDAQ:MTCH), and Ameriprise Financial, Inc. (NYSE:AMP). This group of stocks’ market valuations match PANW’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CLX 28 1011768 -1
ESS 19 508070 3
MTCH 31 787531 7
AMP 39 961087 5
Average 29.25 817114 3.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.25 hedge funds with bullish positions and the average amount invested in these stocks was $817 million. That figure was $2344 million in PANW’s case. Ameriprise Financial, Inc. (NYSE:AMP) is the most popular stock in this table. On the other hand Essex Property Trust Inc (NYSE:ESS) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Palo Alto Networks Inc (NYSE:PANW) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately PANW wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on PANW were disappointed as the stock returned 0% during 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market in Q3.

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

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