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Is Penumbra Inc (PEN) A Good Stock To Buy?

After several tireless days we have finished crunching the numbers from nearly 750 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of December 31. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Penumbra Inc (NYSE:PEN).

Penumbra Inc (NYSE:PEN) has seen a decrease in hedge fund sentiment in recent months. PEN was in 18 hedge funds’ portfolios at the end of December. There were 25 hedge funds in our database with PEN holdings at the end of the previous quarter. Our calculations also showed that PEN isn’t among the 30 most popular stocks among hedge funds.

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 market by 32 percentage points since May 2014 through March 12, 2019 (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 our short portfolio.

Kris Jenner - Rock Springs Capital

We’re going to take a peek at the recent hedge fund action encompassing Penumbra Inc (NYSE:PEN).

How have hedgies been trading Penumbra Inc (NYSE:PEN)?

Heading into the first quarter of 2019, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -28% from one quarter earlier. By comparison, 18 hedge funds held shares or bullish call options in PEN a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

PEN_apr2019

Among these funds, Partner Fund Management held the most valuable stake in Penumbra Inc (NYSE:PEN), which was worth $110.3 million at the end of the third quarter. On the second spot was D E Shaw which amassed $34 million worth of shares. Moreover, Rock Springs Capital Management, Millennium Management, and Redmile Group were also bullish on Penumbra Inc (NYSE:PEN), allocating a large percentage of their portfolios to this stock.

Due to the fact that Penumbra Inc (NYSE:PEN) has experienced bearish sentiment from the entirety of the hedge funds we track, we can see that there were a few funds that decided to sell off their full holdings last quarter. At the top of the heap, John Overdeck and David Siegel’s Two Sigma Advisors cut the largest position of all the hedgies tracked by Insider Monkey, comprising close to $16.6 million in stock, and Phill Gross and Robert Atchinson’s Adage Capital Management was right behind this move, as the fund sold off about $15 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 7 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to Penumbra Inc (NYSE:PEN). These stocks are Texas Pacific Land Trust (NYSE:TPL), JBG SMITH Properties (NYSE:JBGS), The Howard Hughes Corporation (NYSE:HHC), and Primerica, Inc. (NYSE:PRI). This group of stocks’ market values are similar to PEN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TPL 13 1041180 2
JBGS 20 271835 3
HHC 26 476406 7
PRI 16 271268 4
Average 18.75 515172 4

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $515 million. That figure was $232 million in PEN’s case. The Howard Hughes Corporation (NYSE:HHC) is the most popular stock in this table. On the other hand Texas Pacific Land Trust (NYSE:TPL) is the least popular one with only 13 bullish hedge fund positions. Penumbra Inc (NYSE:PEN) is not the least popular stock in this group but hedge fund interest is still below average. 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately PEN wasn’t nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); PEN investors were disappointed as the stock returned 6.3% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.

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

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