Hedge Funds Have Never Been This Bullish On Primo Water Corporation (PRMW)

In this article you are going to find out whether hedge funds think Primo Water Corporation (NASDAQ:PRMW) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Primo Water Corporation (NASDAQ:PRMW) was in 36 hedge funds’ portfolios at the end of March. PRMW investors should be aware of an increase in hedge fund sentiment in recent months. There were 13 hedge funds in our database with PRMW holdings at the end of the previous quarter. Our calculations also showed that PRMW 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.

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. 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 51 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.


Jim Simons Founder of Renaissance Technologies

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a gander at the latest hedge fund action regarding Primo Water Corporation (NASDAQ:PRMW).

Hedge fund activity in Primo Water Corporation (NASDAQ:PRMW)

At the end of the first quarter, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 177% from the fourth quarter of 2019. By comparison, 13 hedge funds held shares or bullish call options in PRMW a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Seth Rosen’s Nitorum Capital has the biggest position in Primo Water Corporation (NASDAQ:PRMW), worth close to $94 million, corresponding to 7.3% of its total 13F portfolio. Sitting at the No. 2 spot is Levin Easterly Partners, managed by John Murphy, which holds a $89.5 million position; the fund has 4% of its 13F portfolio invested in the stock. Other peers that hold long positions contain Claus Moller’s P2 Capital Partners, Gregg Moskowitz’s Interval Partners and Renaissance Technologies. In terms of the portfolio weights assigned to each position P2 Capital Partners allocated the biggest weight to Primo Water Corporation (NASDAQ:PRMW), around 8.73% of its 13F portfolio. Nitorum Capital is also relatively very bullish on the stock, dishing out 7.28 percent of its 13F equity portfolio to PRMW.

As one would reasonably expect, key money managers have jumped into Primo Water Corporation (NASDAQ:PRMW) headfirst. Nitorum Capital, managed by Seth Rosen, initiated the largest position in Primo Water Corporation (NASDAQ:PRMW). Nitorum Capital had $94 million invested in the company at the end of the quarter. John Murphy’s Levin Easterly Partners also made a $89.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Claus Moller’s P2 Capital Partners, Gregg Moskowitz’s Interval Partners, and Leon Shaulov’s Maplelane Capital.

Let’s now review hedge fund activity in other stocks similar to Primo Water Corporation (NASDAQ:PRMW). These stocks are Pebblebrook Hotel Trust (NYSE:PEB), Hillenbrand, Inc. (NYSE:HI), Worthington Industries, Inc. (NYSE:WOR), and Insmed Incorporated (NASDAQ:INSM). This group of stocks’ market valuations match PRMW’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PEB 10 224467 -12
HI 14 124446 -10
WOR 14 33700 -11
INSM 20 358370 -5
Average 14.5 185246 -9.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $185 million. That figure was $463 million in PRMW’s case. Insmed Incorporated (NASDAQ:INSM) is the most popular stock in this table. On the other hand Pebblebrook Hotel Trust (NYSE:PEB) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Primo Water Corporation (NASDAQ:PRMW) is more popular among hedge funds. 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 returned 8.3% in 2020 through the end of May but still managed to beat the market by 13.2 percentage points. Hedge funds were also right about betting on PRMW as the stock returned 32.8% so far in Q2 (through the end of May) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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