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

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Proto Labs Inc (NYSE:PRLB) and determine whether the smart money was really smart about this stock.

Is Proto Labs Inc (NYSE:PRLB) a first-rate stock to buy now? Hedge funds were getting more bullish. The number of long hedge fund bets improved by 3 lately. Our calculations also showed that PRLB 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). PRLB was in 13 hedge funds’ portfolios at the end of March. There were 10 hedge funds in our database with PRLB positions at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Noam Gottesman GLG Partners

Noam Gottesman of GLG Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 9 largest lithium producing countries to identify emerging companies that are likely to deliver 1000% gains in the coming years. 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. With all of this in mind let’s take a look at the fresh hedge fund action regarding Proto Labs Inc (NYSE:PRLB).

What does smart money think about Proto Labs Inc (NYSE:PRLB)?

At Q1’s end, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 30% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in PRLB over the last 18 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

The largest stake in Proto Labs Inc (NYSE:PRLB) was held by Millennium Management, which reported holding $8.4 million worth of stock at the end of September. It was followed by GLG Partners with a $3.9 million position. Other investors bullish on the company included Motley Fool Asset Management, Citadel Investment Group, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Quantinno Capital allocated the biggest weight to Proto Labs Inc (NYSE:PRLB), around 0.41% of its 13F portfolio. Motley Fool Asset Management is also relatively very bullish on the stock, dishing out 0.34 percent of its 13F equity portfolio to PRLB.

With a general bullishness amongst the heavyweights, specific money managers were leading the bulls’ herd. GLG Partners, managed by Noam Gottesman, initiated the biggest position in Proto Labs Inc (NYSE:PRLB). GLG Partners had $3.9 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also initiated a $1.9 million position during the quarter. The following funds were also among the new PRLB investors: Brandon Haley’s Holocene Advisors, Peter Muller’s PDT Partners, and Hoon Kim’s Quantinno Capital.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Proto Labs Inc (NYSE:PRLB) but similarly valued. We will take a look at Advanced Drainage Systems Inc. (NYSE:WMS), Washington Federal Inc. (NASDAQ:WAFD), Fabrinet (NYSE:FN), and Select Medical Holdings Corporation (NYSE:SEM). This group of stocks’ market values resemble PRLB’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WMS 25 368899 0
WAFD 18 42649 -1
FN 22 132983 -3
SEM 18 106537 -3
Average 20.75 162767 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $163 million. That figure was $21 million in PRLB’s case. Advanced Drainage Systems Inc. (NYSE:WMS) is the most popular stock in this table. On the other hand Washington Federal Inc. (NASDAQ:WAFD) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Proto Labs Inc (NYSE:PRLB) is even less popular than WAFD. Hedge funds clearly dropped the ball on PRLB 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 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. A small number of hedge funds were also right about betting on PRLB as the stock returned 47.2% 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.