In this article we will check out the progression of hedge fund sentiment towards Patrick Industries, Inc. (NASDAQ:PATK) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is PATK a good stock to buy now? Prominent investors were in an optimistic mood. The number of bullish hedge fund positions went up by 2 recently. Patrick Industries, Inc. (NASDAQ:PATK) was in 17 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 24. Our calculations also showed that PATK 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). There were 15 hedge funds in our database with PATK holdings at the end of June.
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 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. Now we’re going to view the recent hedge fund action encompassing Patrick Industries, Inc. (NASDAQ:PATK).
Do Hedge Funds Think PATK Is A Good Stock To Buy Now?
At the end of September, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PATK over the last 21 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Royce & Associates, managed by Chuck Royce, holds the largest position in Patrick Industries, Inc. (NASDAQ:PATK). Royce & Associates has a $24.3 million position in the stock, comprising 0.3% of its 13F portfolio. The second most bullish fund manager is Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holding a $12.8 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other peers with similar optimism consist of Jeffrey Gendell’s Tontine Asset Management, Tim David’s Guardian Point Capital and Ben Gordon’s Blue Grotto Capital. In terms of the portfolio weights assigned to each position Blue Grotto Capital allocated the biggest weight to Patrick Industries, Inc. (NASDAQ:PATK), around 4.62% of its 13F portfolio. Guardian Point Capital is also relatively very bullish on the stock, setting aside 4.01 percent of its 13F equity portfolio to PATK.
As one would reasonably expect, key hedge funds have jumped into Patrick Industries, Inc. (NASDAQ:PATK) headfirst. Tudor Investment Corp, managed by Paul Tudor Jones, assembled the most outsized position in Patrick Industries, Inc. (NASDAQ:PATK). Tudor Investment Corp had $0.8 million invested in the company at the end of the quarter. Jonathan Soros’s JS Capital also made a $0.5 million investment in the stock during the quarter. The only other fund with a new position in the stock is Donald Sussman’s Paloma Partners.
Let’s now take a look at hedge fund activity in other stocks similar to Patrick Industries, Inc. (NASDAQ:PATK). These stocks are Purple Innovation, Inc. (NASDAQ:PRPL), Heron Therapeutics Inc (NASDAQ:HRTX), World Fuel Services Corporation (NYSE:INT), Compugen Ltd. (NASDAQ:CGEN), Terex Corporation (NYSE:TEX), Dicerna Pharmaceuticals Inc (NASDAQ:DRNA), and HNI Corp (NYSE:HNI). This group of stocks’ market values resemble PATK’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 19.9 hedge funds with bullish positions and the average amount invested in these stocks was $226 million. That figure was $94 million in PATK’s case. Purple Innovation, Inc. (NASDAQ:PRPL) is the most popular stock in this table. On the other hand HNI Corp (NYSE:HNI) is the least popular one with only 7 bullish hedge fund positions. Patrick Industries, Inc. (NASDAQ:PATK) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for PATK is 45.5. 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. A small number of hedge funds were also right about betting on PATK as the stock returned 19.8% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.