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Hedge Funds Have Never Been This Bullish On PriceSmart, Inc. (PSMT)

Before we spend days researching a stock idea we like to take a look at how hedge funds and billionaire investors recently traded that stock. Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018. This means hedge funds that are allocating a higher percentage of their portfolio to small-cap stocks were probably underperforming the market. However, this also means that as small-cap stocks start to mean revert, these hedge funds will start delivering better returns than the S&P 500 Index funds. In this article, we will take a look at what hedge funds think about PriceSmart, Inc. (NASDAQ:PSMT).

Is PriceSmart, Inc. (NASDAQ:PSMT) going to take off soon? The best stock pickers are buying. The number of long hedge fund positions rose by 5 lately. Our calculations also showed that PSMT isn’t among the 30 most popular stocks among hedge funds (see the video below). PSMT was in 15 hedge funds’ portfolios at the end of June. There were 10 hedge funds in our database with PSMT 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.

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.

PSMT_oct2019

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, 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. Let’s take a glance at the fresh hedge fund action surrounding PriceSmart, Inc. (NASDAQ:PSMT).

What have hedge funds been doing with PriceSmart, Inc. (NASDAQ:PSMT)?

Heading into the third quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 50% from the previous quarter. On the other hand, there were a total of 4 hedge funds with a bullish position in PSMT 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.

Roger Ibbotson Zebra Capital

More specifically, Renaissance Technologies was the largest shareholder of PriceSmart, Inc. (NASDAQ:PSMT), with a stake worth $28.6 million reported as of the end of March. Trailing Renaissance Technologies was Citadel Investment Group, which amassed a stake valued at $12 million. Millennium Management, Marshall Wace LLP, and D E Shaw were also very fond of the stock, giving the stock large weights in their portfolios.

Now, key hedge funds were leading the bulls’ herd. Two Sigma Advisors, managed by John Overdeck and David Siegel, established the biggest position in PriceSmart, Inc. (NASDAQ:PSMT). Two Sigma Advisors had $0.9 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also initiated a $0.8 million position during the quarter. The other funds with new positions in the stock are Roger Ibbotson’s Zebra Capital Management, Minhua Zhang’s Weld Capital Management, and Joel Greenblatt’s Gotham Asset Management.

Let’s check out hedge fund activity in other stocks similar to PriceSmart, Inc. (NASDAQ:PSMT). We will take a look at Chesapeake Utilities Corporation (NYSE:CPK), Cooper Tire & Rubber Company (NYSE:CTB), Berkshire Hills Bancorp, Inc. (NYSE:BHLB), and Kaiser Aluminum Corp. (NASDAQ:KALU). This group of stocks’ market valuations are similar to PSMT’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CPK 9 37823 -2
CTB 15 165487 -2
BHLB 9 56410 -4
KALU 15 110047 -4
Average 12 92442 -3

View table here if you experience formatting issues.

As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $92 million. That figure was $61 million in PSMT’s case. Cooper Tire & Rubber Company (NYSE:CTB) is the most popular stock in this table. On the other hand Chesapeake Utilities Corporation (NYSE:CPK) is the least popular one with only 9 bullish hedge fund positions. PriceSmart, Inc. (NASDAQ:PSMT) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on PSMT as the stock returned 39.9% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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