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Hedge Funds Have Never Been More Bullish On Proto Labs Inc (PRLB)

“The end to the U.S. Government shutdown, reports of progress on China-U.S. trade talks, and the Federal Reserve’s confirmation that it did not plan further interest rate hikes in 2019 allayed investor fears and drove U.S. markets substantially higher in the first quarter of the year. Global markets followed suit pretty much across the board delivering what some market participants described as a “V-shaped” recovery,” This is how Evermore Global Value summarized the first quarter in its investor letter. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards one of the stocks hedge funds invest in.

Is Proto Labs Inc (NYSE:PRLB) a buy, sell, or hold? The smart money is buying. The number of long hedge fund positions increased by 1 recently. Our calculations also showed that prlb isn’t among the 30 most popular stocks among hedge funds.

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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.

Chuck Royce

Let’s take a gander at the new hedge fund action surrounding Proto Labs Inc (NYSE:PRLB).

What have hedge funds been doing with Proto Labs Inc (NYSE:PRLB)?

At Q1’s end, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards PRLB over the last 15 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.

No of Hedge Funds with PRLB Positions

More specifically, GLG Partners was the largest shareholder of Proto Labs Inc (NYSE:PRLB), with a stake worth $6.6 million reported as of the end of March. Trailing GLG Partners was Renaissance Technologies, which amassed a stake valued at $5.1 million. D E Shaw, Millennium Management, and Royce & Associates were also very fond of the stock, giving the stock large weights in their portfolios.

Now, key hedge funds were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the largest position in Proto Labs Inc (NYSE:PRLB). Arrowstreet Capital had $0.8 million invested in the company at the end of the quarter. Matthew Hulsizer’s PEAK6 Capital Management also made a $0.1 million investment in the stock during the quarter. The only other fund with a new position in the stock is Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital.

Let’s now review hedge fund activity in other stocks similar to Proto Labs Inc (NYSE:PRLB). These stocks are Cosan Limited (NYSE:CZZ), Glaukos Corporation (NYSE:GKOS), Yelp Inc (NYSE:YELP), and Navient Corp (NASDAQ:NAVI). This group of stocks’ market caps are similar to PRLB’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CZZ 16 141039 -2
GKOS 15 69093 4
YELP 33 568083 9
NAVI 31 470784 2
Average 23.75 312250 3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $312 million. That figure was $24 million in PRLB’s case. Yelp Inc (NYSE:YELP) is the most popular stock in this table. On the other hand Glaukos Corporation (NYSE:GKOS) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Proto Labs Inc (NYSE:PRLB) is even less popular than GKOS. Hedge funds dodged a bullet by taking a bearish stance towards PRLB. Our calculations showed that the top 20 most popular hedge fund stocks returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately PRLB wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); PRLB investors were disappointed as the stock returned -1.4% during the same time frame 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 13 of these stocks already outperformed the market so far in the second quarter.

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

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