Is Palomar Holdings, Inc. (NASDAQ:PLMR) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Is PLMR a good stock to buy now? Palomar Holdings, Inc. (NASDAQ:PLMR) was in 8 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 15. PLMR investors should be aware of a decrease in activity from the world’s largest hedge funds lately. There were 15 hedge funds in our database with PLMR positions at the end of the second quarter. Our calculations also showed that PLMR 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).
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 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 5 best cheap stocks to buy according to Ray Dalio to identify stocks with 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. Keeping this in mind we’re going to view the recent hedge fund action regarding Palomar Holdings, Inc. (NASDAQ:PLMR).
How are hedge funds trading Palomar Holdings, Inc. (NASDAQ:PLMR)?
At third quarter’s end, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -47% from the previous quarter. The graph below displays the number of hedge funds with bullish position in PLMR over the last 21 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
Among these funds, Driehaus Capital held the most valuable stake in Palomar Holdings, Inc. (NASDAQ:PLMR), which was worth $42.6 million at the end of the third quarter. On the second spot was Royce & Associates which amassed $14.2 million worth of shares. GLG Partners, Citadel Investment Group, and Winton Capital 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 Driehaus Capital allocated the biggest weight to Palomar Holdings, Inc. (NASDAQ:PLMR), around 0.87% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, designating 0.15 percent of its 13F equity portfolio to PLMR.
Due to the fact that Palomar Holdings, Inc. (NASDAQ:PLMR) has experienced bearish sentiment from the smart money, we can see that there exists a select few funds that slashed their positions entirely heading into Q4. It’s worth mentioning that Israel Englander’s Millennium Management dumped the biggest stake of the 750 funds watched by Insider Monkey, comprising an estimated $17.1 million in stock. Steve Cohen’s fund, Point72 Asset Management, also cut its stock, about $8.3 million worth. These moves are interesting, as aggregate hedge fund interest fell by 7 funds heading into Q4.
Let’s also examine hedge fund activity in other stocks similar to Palomar Holdings, Inc. (NASDAQ:PLMR). These stocks are Valmont Industries, Inc. (NYSE:VMI), BRF SA (NYSE:BRFS), Kodiak Sciences Inc (NASDAQ:KOD), Camping World Holdings, Inc. (NYSE:CWH), Alkermes Plc (NASDAQ:ALKS), Tripadvisor Inc (NASDAQ:TRIP), and Sanderson Farms, Inc. (NASDAQ:SAFM). This group of stocks’ market caps match PLMR’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 23.1 hedge funds with bullish positions and the average amount invested in these stocks was $411 million. That figure was $68 million in PLMR’s case. Camping World Holdings, Inc. (NYSE:CWH) is the most popular stock in this table. On the other hand BRF SA (NYSE:BRFS) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Palomar Holdings, Inc. (NASDAQ:PLMR) is even less popular than BRFS. Our overall hedge fund sentiment score for PLMR is 14. 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. Hedge funds dodged a bullet by taking a bearish stance towards PLMR. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd but managed to beat the market again by 16 percentage points. Unfortunately PLMR wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); PLMR investors were disappointed as the stock returned -35.4% since the end of the third quarter (through 12/2) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.