Is PAE Incorporated (NASDAQ:PAE) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Is PAE a good stock to buy now? Hedge fund interest in PAE Incorporated (NASDAQ:PAE) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that PAE isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare PAE to other stocks including Douglas Dynamics Inc (NYSE:PLOW), Trean Insurance Group, Inc. (NASDAQ:TIG), and Keros Therapeutics, Inc. (NASDAQ:KROS) to get a better sense of its popularity.
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 66 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind we’re going to take a glance at the recent hedge fund action regarding PAE Incorporated (NASDAQ:PAE).
Do Hedge Funds Think PAE Is A Good Stock To Buy Now?
At Q3’s end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in PAE over the last 21 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Simcoe Capital Management, managed by Jeffrey Jacobowitz, holds the number one position in PAE Incorporated (NASDAQ:PAE). Simcoe Capital Management has a $37.7 million position in the stock, comprising 8.6% of its 13F portfolio. Coming in second is Millennium Management, managed by Israel Englander, which holds a $23.6 million call position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other members of the smart money with similar optimism contain Traci Lerner’s Chescapmanager LLC, Alec Litowitz and Ross Laser’s Magnetar Capital and Marc Majzner’s Clearline Capital. In terms of the portfolio weights assigned to each position Simcoe Capital Management allocated the biggest weight to PAE Incorporated (NASDAQ:PAE), around 8.64% of its 13F portfolio. Chescapmanager LLC is also relatively very bullish on the stock, earmarking 2.87 percent of its 13F equity portfolio to PAE.
Because PAE Incorporated (NASDAQ:PAE) has witnessed falling interest from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of funds who sold off their entire stakes heading into Q4. It’s worth mentioning that Israel Englander’s Millennium Management cut the biggest investment of the 750 funds followed by Insider Monkey, worth an estimated $15.6 million in stock. Louis Bacon’s fund, Moore Global Investments, also dropped its stock, about $4.2 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as PAE Incorporated (NASDAQ:PAE) but similarly valued. These stocks are Douglas Dynamics Inc (NYSE:PLOW), Trean Insurance Group, Inc. (NASDAQ:TIG), Keros Therapeutics, Inc. (NASDAQ:KROS), i3 Verticals, Inc. (NASDAQ:IIIV), Newmark Group, Inc. (NASDAQ:NMRK), Triumph Bancorp Inc (NASDAQ:TBK), and Puxin Limited (NYSE:NEW). This group of stocks’ market values resemble PAE’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.1 hedge funds with bullish positions and the average amount invested in these stocks was $67 million. That figure was $108 million in PAE’s case. Newmark Group, Inc. (NASDAQ:NMRK) is the most popular stock in this table. On the other hand Triumph Bancorp Inc (NASDAQ:TBK) is the least popular one with only 5 bullish hedge fund positions. PAE Incorporated (NASDAQ:PAE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PAE is 72.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on PAE as the stock returned 10.1% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.