Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 817 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Palo Alto Networks Inc (NYSE:PANW) in this article.
Is (PANW) a good stock to buy now? Hedge funds were getting more bullish. The number of bullish hedge fund positions moved up by 8 in recent months. Palo Alto Networks Inc (NYSE:PANW) was in 59 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 52. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that PANW 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).
Video: 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 S&P 500 ETFs by more than 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
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 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. 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 let’s analyze the latest hedge fund action encompassing Palo Alto Networks Inc (NYSE:PANW).
What does smart money think about Palo Alto Networks Inc (NYSE:PANW)?
At third quarter’s end, a total of 59 of the hedge funds tracked by Insider Monkey were long this stock, a change of 16% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards PANW over the last 21 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Palo Alto Networks Inc (NYSE:PANW) was held by Renaissance Technologies, which reported holding $961.5 million worth of stock at the end of September. It was followed by Generation Investment Management with a $770.2 million position. Other investors bullish on the company included Farallon Capital, D E Shaw, and Harvard Management Co. In terms of the portfolio weights assigned to each position Isomer Partners allocated the biggest weight to Palo Alto Networks Inc (NYSE:PANW), around 11.21% of its 13F portfolio. Harvard Management Co is also relatively very bullish on the stock, dishing out 9.77 percent of its 13F equity portfolio to PANW.
With a general bullishness amongst the heavyweights, specific money managers were leading the bulls’ herd. Duquesne Capital, managed by Stanley Druckenmiller, initiated the largest position in Palo Alto Networks Inc (NYSE:PANW). Duquesne Capital had $20.1 million invested in the company at the end of the quarter. Principal Global Investors’s Columbus Circle Investors also initiated a $12 million position during the quarter. The other funds with brand new PANW positions are Eric Bannasch’s Cadian Capital, Leon Shaulov’s Maplelane Capital, and Tor Minesuk’s Mondrian Capital.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Palo Alto Networks Inc (NYSE:PANW) but similarly valued. These stocks are Roku, Inc. (NASDAQ:ROKU), LyondellBasell Industries NV (NYSE:LYB), Verisign, Inc. (NASDAQ:VRSN), ZTO Express (Cayman) Inc. (NYSE:ZTO), Sirius XM Holdings Inc (NASDAQ:SIRI), Church & Dwight Co., Inc. (NYSE:CHD), and Mettler-Toledo International Inc. (NYSE:MTD). This group of stocks’ market caps match PANW’s market cap.
|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 37.3 hedge funds with bullish positions and the average amount invested in these stocks was $1446 million. That figure was $3197 million in PANW’s case. Roku, Inc. (NASDAQ:ROKU) is the most popular stock in this table. On the other hand ZTO Express (Cayman) Inc. (NYSE:ZTO) is the least popular one with only 22 bullish hedge fund positions. Palo Alto Networks Inc (NYSE:PANW) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PANW is 90. 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 31.6% in 2020 through December 2nd and still beat the market by 16 percentage points. Hedge funds were also right about betting on PANW as the stock returned 19.8% since the end of Q3 (through 12/2) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.