Is Pegasystems Inc. (PEGA) A Good Stock To Buy?

Before we spend days researching a stock idea we’d like to take a look at how hedge funds and billionaire investors recently traded that stock. S&P 500 Index ETF (SPY) lost 8.7% through October 26th. Forty percent of the S&P 500 constituents were down more than 10%. The average return of a randomly picked stock in the index is -9.5%. This means you (or a monkey throwing a dart) have less than an even chance of beating the market by randomly picking a stock. On the other hand, the top 25 most popular S&P 500 stocks among hedge funds had an average loss of 8.8%. In this article, we will take a look at what hedge funds think about Pegasystems Inc. (NASDAQ:PEGA).

Is Pegasystems Inc. (NASDAQ:PEGA) a buy, sell, or hold? Investors who are in the know are taking a bearish view. The number of long hedge fund bets shrunk by 1 recently. Our calculations also showed that PEGA isn’t among the 30 most popular stocks among hedge funds. PEGA was in 22 hedge funds’ portfolios at the end of the third quarter of 2018. There were 23 hedge funds in our database with PEGA positions at the end of the previous quarter.

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 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ricky Sandler, Eminence Capital

We’re going to go over the key hedge fund action encompassing Pegasystems Inc. (NASDAQ:PEGA).

Hedge fund activity in Pegasystems Inc. (NASDAQ:PEGA)

At the end of the third quarter, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from one quarter earlier. By comparison, 17 hedge funds held shares or bullish call options in PEGA heading into this year. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.


Among these funds, SQN Investors held the most valuable stake in Pegasystems Inc. (NASDAQ:PEGA), which was worth $103.7 million at the end of the third quarter. On the second spot was Eminence Capital which amassed $96.6 million worth of shares. Moreover, Fisher Asset Management, Cadian Capital, and Citadel Investment Group were also bullish on Pegasystems Inc. (NASDAQ:PEGA), allocating a large percentage of their portfolios to this stock.

Since Pegasystems Inc. (NASDAQ:PEGA) has faced declining sentiment from the aggregate hedge fund industry, it’s safe to say that there exists a select few money managers who were dropping their positions entirely by the end of the third quarter. Interestingly, Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners dropped the biggest position of all the hedgies tracked by Insider Monkey, totaling close to $3 million in stock. Matthew Tewksbury’s fund, Stevens Capital Management, also dumped its stock, about $2.5 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 1 funds by the end of the third quarter.

Let’s now review hedge fund activity in other stocks similar to Pegasystems Inc. (NASDAQ:PEGA). These stocks are Kirby Corporation (NYSE:KEX), Highwoods Properties Inc (NYSE:HIW), Algonquin Power & Utilities Corp. (NYSE:AQN), and Bank OZK (NASDAQ:OZK). This group of stocks’ market caps resemble PEGA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KEX 16 438146 -2
HIW 14 188875 -1
AQN 6 28606 0
OZK 10 183953 -5
Average 11.5 209895 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $210 million. That figure was $607 million in PEGA’s case. Kirby Corporation (NYSE:KEX) is the most popular stock in this table. On the other hand Algonquin Power & Utilities Corp. (NYSE:AQN) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Pegasystems Inc. (NASDAQ:PEGA) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

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