Here’s What Hedge Funds Think About Patterson Companies, Inc. (PDCO)

“The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak,” are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. 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 Patterson Companies, Inc. (NASDAQ:PDCO) and see how it was affected.

Hedge fund interest in Patterson Companies, Inc. (NASDAQ:PDCO) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare PDCO to other stocks including Pampa Energia S.A. (NYSE:PAM), Herman Miller, Inc. (NASDAQ:MLHR), and Minerals Technologies Inc (NYSE:MTX) to get a better sense of its popularity.

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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Jeffrey Bronchick - Cove Street Capital

We’re going to take a peek at the new hedge fund action regarding Patterson Companies, Inc. (NASDAQ:PDCO).

Hedge fund activity in Patterson Companies, Inc. (NASDAQ:PDCO)

At Q1’s end, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PDCO over the last 15 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with PDCO Positions

More specifically, GAMCO Investors was the largest shareholder of Patterson Companies, Inc. (NASDAQ:PDCO), with a stake worth $41.7 million reported as of the end of March. Trailing GAMCO Investors was Two Sigma Advisors, which amassed a stake valued at $25.2 million. D E Shaw, Cove Street Capital, and Tavio Capital were also very fond of the stock, giving the stock large weights in their portfolios.

Because Patterson Companies, Inc. (NASDAQ:PDCO) has faced a decline in interest from the smart money, it’s safe to say that there lies a certain “tier” of hedgies who sold off their full holdings last quarter. At the top of the heap, Paul Marshall and Ian Wace’s Marshall Wace LLP sold off the biggest stake of all the hedgies followed by Insider Monkey, worth an estimated $4.6 million in call options, and John D. Gillespie’s Prospector Partners was right behind this move, as the fund said goodbye to about $2.4 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks similar to Patterson Companies, Inc. (NASDAQ:PDCO). These stocks are Pampa Energia S.A. (NYSE:PAM), Herman Miller, Inc. (NASDAQ:MLHR), Minerals Technologies Inc (NYSE:MTX), and Innospec Inc. (NASDAQ:IOSP). This group of stocks’ market values are similar to PDCO’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PAM 21 277150 6
MLHR 23 91547 1
MTX 14 151752 0
IOSP 14 61172 0
Average 18 145405 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $145 million. That figure was $199 million in PDCO’s case. Herman Miller, Inc. (NASDAQ:MLHR) is the most popular stock in this table. On the other hand Minerals Technologies Inc (NYSE:MTX) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Patterson Companies, Inc. (NASDAQ:PDCO) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on PDCO, though not to the same extent, as the stock returned -0.4% during the same period and outperformed the market as well.

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