At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards PriceSmart, Inc. (NASDAQ:PSMT) at the end of the first quarter and determine whether the smart money was really smart about this stock.
Is PriceSmart, Inc. (NASDAQ:PSMT) a safe stock to buy now? Prominent investors were reducing their bets on the stock. The number of bullish hedge fund positions shrunk by 7 in recent months. Our calculations also showed that PSMT isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). PSMT was in 11 hedge funds’ portfolios at the end of the first quarter of 2020. There were 18 hedge funds in our database with PSMT holdings at the end of the previous quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a look at the fresh hedge fund action surrounding PriceSmart, Inc. (NASDAQ:PSMT).
What have hedge funds been doing with PriceSmart, Inc. (NASDAQ:PSMT)?
At the end of the first quarter, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -39% from the previous quarter. The graph below displays the number of hedge funds with bullish position in PSMT over the last 18 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Renaissance Technologies, holds the biggest position in PriceSmart, Inc. (NASDAQ:PSMT). Renaissance Technologies has a $22.3 million position in the stock, comprising less than 0.1%% of its 13F portfolio. On Renaissance Technologies’s heels is Winton Capital Management, led by David Harding, holding a $3.4 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other peers that hold long positions contain Noam Gottesman’s GLG Partners, D. E. Shaw’s D E Shaw and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Winton Capital Management allocated the biggest weight to PriceSmart, Inc. (NASDAQ:PSMT), around 0.09% of its 13F portfolio. AlphaCrest Capital Management is also relatively very bullish on the stock, earmarking 0.03 percent of its 13F equity portfolio to PSMT.
Due to the fact that PriceSmart, Inc. (NASDAQ:PSMT) has faced bearish sentiment from the smart money, it’s easy to see that there is a sect of hedgies who sold off their full holdings by the end of the first quarter. Interestingly, Israel Englander’s Millennium Management cut the biggest stake of all the hedgies followed by Insider Monkey, worth close to $1.7 million in stock. Michael Gelband’s fund, ExodusPoint Capital, also sold off its stock, about $0.9 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 7 funds by the end of the first quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as PriceSmart, Inc. (NASDAQ:PSMT) but similarly valued. We will take a look at Ping Identity Holding Corp. (NYSE:PING), WesBanco, Inc. (NASDAQ:WSBC), Noah Holdings Limited (NYSE:NOAH), and Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD). This group of stocks’ market caps match PSMT’s market cap.
|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 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $185 million. That figure was $35 million in PSMT’s case. Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) is the most popular stock in this table. On the other hand WesBanco, Inc. (NASDAQ:WSBC) is the least popular one with only 9 bullish hedge fund positions. PriceSmart, Inc. (NASDAQ:PSMT) 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately PSMT wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); PSMT investors were disappointed as the stock returned 14.8% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 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.