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 Photronics, Inc. (NASDAQ:PLAB) to find out whether there were any major changes in hedge funds’ views.
Is PLAB a good stock to buy? Money managers were taking a pessimistic view. The number of bullish hedge fund positions shrunk by 1 in recent months. Photronics, Inc. (NASDAQ:PLAB) was in 20 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 22. Our calculations also showed that PLAB 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 21 hedge funds in our database with PLAB holdings at the end of June.
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 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.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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. With all of this in mind we’re going to review the new hedge fund action encompassing Photronics, Inc. (NASDAQ:PLAB).
Do Hedge Funds Think PLAB Is A Good Stock To Buy Now?
At the end of September, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards PLAB 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.
Among these funds, Divisar Capital held the most valuable stake in Photronics, Inc. (NASDAQ:PLAB), which was worth $12.1 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $10 million worth of shares. Royce & Associates, Arrowstreet Capital, and D E Shaw 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 Divisar Capital allocated the biggest weight to Photronics, Inc. (NASDAQ:PLAB), around 3.99% of its 13F portfolio. Factorial Partners is also relatively very bullish on the stock, designating 0.66 percent of its 13F equity portfolio to PLAB.
Due to the fact that Photronics, Inc. (NASDAQ:PLAB) has faced bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there exists a select few money managers that decided to sell off their positions entirely heading into Q4. At the top of the heap, Carson Yost’s Yost Capital Management sold off the biggest stake of the “upper crust” of funds followed by Insider Monkey, totaling about $12 million in stock, and Michael Gelband’s ExodusPoint Capital was right behind this move, as the fund sold off about $0.8 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds heading into Q4.
Let’s also examine hedge fund activity in other stocks similar to Photronics, Inc. (NASDAQ:PLAB). We will take a look at American Axle & Manufacturing Holdings, Inc. (NYSE:AXL), Nexgen Energy Ltd. (NYSE:NXE), Scorpio Tankers Inc. (NYSE:STNG), TPG RE Finance Trust, Inc. (NYSE:TRTX), Hibbett Sports, Inc. (NASDAQ:HIBB), Sculptor Capital Management, Inc. (NYSE:SCU), and Apollo Medical Holdings, Inc. (NASDAQ:AMEH). This group of stocks’ market values resemble PLAB’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 13.7 hedge funds with bullish positions and the average amount invested in these stocks was $63 million. That figure was $74 million in PLAB’s case. American Axle & Manufacturing Holdings, Inc. (NYSE:AXL) is the most popular stock in this table. On the other hand Nexgen Energy Ltd. (NYSE:NXE) is the least popular one with only 6 bullish hedge fund positions. Photronics, Inc. (NASDAQ:PLAB) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PLAB is 75. 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. Hedge funds were also right about betting on PLAB as the stock returned 11.7% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.