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Hedge Funds Getting Bullish On The Pennant Group, Inc. (PNTG)

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of The Pennant Group, Inc. (NASDAQ:PNTG) based on that data.

The Pennant Group, Inc. (NASDAQ:PNTG) was in 8 hedge funds’ portfolios at the end of the first quarter of 2020. PNTG investors should pay attention to an increase in hedge fund interest recently. There were 6 hedge funds in our database with PNTG positions at the end of the previous quarter. Our calculations also showed that PNTG 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Kamran Moghtaderi of Eversept PartnersEversept Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the latest hedge fund action regarding The Pennant Group, Inc. (NASDAQ:PNTG).

Hedge fund activity in The Pennant Group, Inc. (NASDAQ:PNTG)

Heading into the second quarter of 2020, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of 33% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards PNTG over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Angela Aldrich’s Bayberry Capital Partners has the most valuable position in The Pennant Group, Inc. (NASDAQ:PNTG), worth close to $6.7 million, comprising 2.7% of its total 13F portfolio. On Bayberry Capital Partners’s heels is Eversept Partners, led by Kamran Moghtaderi, holding a $4 million position; the fund has 1% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism include Chuck Royce’s Royce & Associates, Frederick DiSanto’s Ancora Advisors and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Bayberry Capital Partners allocated the biggest weight to The Pennant Group, Inc. (NASDAQ:PNTG), around 2.72% of its 13F portfolio. Eversept Partners is also relatively very bullish on the stock, earmarking 1.01 percent of its 13F equity portfolio to PNTG.

As industrywide interest jumped, some big names were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, established the most outsized position in The Pennant Group, Inc. (NASDAQ:PNTG). Citadel Investment Group had $0.9 million invested in the company at the end of the quarter. Renaissance Technologies also made a $0.6 million investment in the stock during the quarter. The only other fund with a brand new PNTG position is Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as The Pennant Group, Inc. (NASDAQ:PNTG) but similarly valued. We will take a look at Agilysys, Inc. (NASDAQ:AGYS), City Office REIT Inc (NYSE:CIO), Community Health Systems, Inc. (NYSE:CYH), and Gilat Satellite Networks Ltd. (NASDAQ:GILT). This group of stocks’ market values resemble PNTG’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AGYS 14 85802 -2
CIO 15 34627 2
CYH 20 159301 4
GILT 13 50128 11
Average 15.5 82465 3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $82 million. That figure was $17 million in PNTG’s case. Community Health Systems, Inc. (NYSE:CYH) is the most popular stock in this table. On the other hand Gilat Satellite Networks Ltd. (NASDAQ:GILT) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks The Pennant Group, Inc. (NASDAQ:PNTG) is even less popular than GILT. Hedge funds clearly dropped the ball on PNTG as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 12.2% in 2020 through June 17th and still beat the market by 14.8 percentage points. A small number of hedge funds were also right about betting on PNTG as the stock returned 70.7% so far in the second quarter and outperformed the market by an even larger margin.

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