Is PEGA Stock A Buy or Sell?

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Pegasystems Inc. (NASDAQ:PEGA) to find out whether there were any major changes in hedge funds’ views.

Is PEGA stock a buy? Pegasystems Inc. (NASDAQ:PEGA) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 32 hedge funds’ portfolios at the end of December. Our calculations also showed that PEGA isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). At the end of this article we will also compare PEGA to other stocks including LKQ Corporation (NASDAQ:LKQ), Allegion plc (NYSE:ALLE), and Lumen Technologies, Inc. (NYSE:LUMN) 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’ 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 124 percentage points since March 2017 (see the details here).

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x 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 take a look at the recent hedge fund action surrounding Pegasystems Inc. (NASDAQ:PEGA).

Do Hedge Funds Think PEGA Is A Good Stock To Buy Now?

Heading into the first quarter of 2021, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 25 hedge funds with a bullish position in PEGA a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

Among these funds, Bares Capital Management held the most valuable stake in Pegasystems Inc. (NASDAQ:PEGA), which was worth $693.9 million at the end of the fourth quarter. On the second spot was Luxor Capital Group which amassed $406 million worth of shares. Cadian Capital, Praesidium Investment Management Company, and Fisher Asset Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Bares Capital Management allocated the biggest weight to Pegasystems Inc. (NASDAQ:PEGA), around 12.83% of its 13F portfolio. Totem Point Management is also relatively very bullish on the stock, earmarking 11.67 percent of its 13F equity portfolio to PEGA.

Judging by the fact that Pegasystems Inc. (NASDAQ:PEGA) has experienced falling interest from hedge fund managers, it’s safe to say that there lies a certain “tier” of hedgies who were dropping their positions entirely last quarter. At the top of the heap, Thomas Ellis and Todd Hammer’s North Run Capital dumped the largest stake of the “upper crust” of funds monitored by Insider Monkey, valued at an estimated $2.6 million in stock, and Michael Gelband’s ExodusPoint Capital was right behind this move, as the fund dropped about $2.4 million worth. These moves 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 Pegasystems Inc. (NASDAQ:PEGA). These stocks are LKQ Corporation (NASDAQ:LKQ), Allegion plc (NYSE:ALLE), Lumen Technologies, Inc. (NYSE:LUMN), Advance Auto Parts, Inc. (NYSE:AAP), Zynga Inc (NASDAQ:ZNGA), News Corp (NASDAQ:NWSA), and Teva Pharmaceutical Industries Limited (NYSE:TEVA). This group of stocks’ market values match PEGA’s market value.

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As you can see these stocks had an average of 36 hedge funds with bullish positions and the average amount invested in these stocks was $1029 million. That figure was $2099 million in PEGA’s case. Zynga Inc (NASDAQ:ZNGA) is the most popular stock in this table. On the other hand Teva Pharmaceutical Industries Limited (NYSE:TEVA) is the least popular one with only 26 bullish hedge fund positions. Pegasystems Inc. (NASDAQ:PEGA) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for PEGA is 45.6. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.2% in 2021 through April 12th and surpassed the market again by 1.5 percentage points. Unfortunately PEGA wasn’t nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); PEGA investors were disappointed as the stock returned -6.4% since the end of December (through 4/12) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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

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