Is PSA A Good Stock To Buy Now?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Public Storage (NYSE:PSA).

Is PSA a good stock to buy now? The smart money was taking a pessimistic view. The number of long hedge fund bets were cut by 9 in recent months. Public Storage (NYSE:PSA) was in 17 hedge funds’ portfolios at the end of September. The all time high for this statistic is 27. Our calculations also showed that PSA 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.

If you’d ask most traders, hedge funds are viewed as slow, outdated investment vehicles of years past. While there are over 8000 funds in operation at present, Our researchers choose to focus on the elite of this group, approximately 850 funds. Most estimates calculate that this group of people handle the majority of the hedge fund industry’s total asset base, and by keeping an eye on their inimitable stock picks, Insider Monkey has spotted many investment strategies that have historically beaten the broader indices. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .

Robert Atchinson of Adage Capital Management

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 15 best blue chip stocks 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 let’s go over the recent hedge fund action regarding Public Storage (NYSE:PSA).

Do Hedge Funds Think PSA Is A Good Stock To Buy Now?

At the end of the third quarter, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -35% from the previous quarter. By comparison, 25 hedge funds held shares or bullish call options in PSA a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is PSA A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, holds the most valuable position in Public Storage (NYSE:PSA). Renaissance Technologies has a $245 million position in the stock, comprising 0.2% of its 13F portfolio. On Renaissance Technologies’s heels is Diamond Hill Capital, managed by Ric Dillon, which holds a $171.2 million position; 0.9% of its 13F portfolio is allocated to the company. Some other peers with similar optimism contain Cliff Asness’s AQR Capital Management, Ken Griffin’s Citadel Investment Group and Phill Gross and Robert Atchinson’s Adage Capital Management. In terms of the portfolio weights assigned to each position Soapstone Capital allocated the biggest weight to Public Storage (NYSE:PSA), around 7.52% of its 13F portfolio. Diamond Hill Capital is also relatively very bullish on the stock, designating 0.94 percent of its 13F equity portfolio to PSA.

Due to the fact that Public Storage (NYSE:PSA) has witnessed falling interest from the aggregate hedge fund industry, logic holds that there was a specific group of money managers who were dropping their positions entirely by the end of the third quarter. Interestingly, Greg Poole’s Echo Street Capital Management sold off the largest investment of the “upper crust” of funds monitored by Insider Monkey, worth about $17.9 million in stock, and Martin Whitman’s Third Avenue Management was right behind this move, as the fund dumped about $7.3 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 9 funds by the end of the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Public Storage (NYSE:PSA) but similarly valued. We will take a look at Itau Unibanco Holding SA (NYSE:ITUB), Keurig Dr Pepper Inc. (NASDAQ:KDP), Snap Inc. (NYSE:SNAP), Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG), Carvana Co. (NYSE:CVNA), General Mills, Inc. (NYSE:GIS), and Electronic Arts Inc. (NASDAQ:EA). This group of stocks’ market caps are similar to PSA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ITUB 16 236336 -4
KDP 41 1213638 12
SNAP 51 1166136 2
SMFG 8 88240 -2
CVNA 53 6020303 -4
GIS 36 1054191 -1
EA 62 1376224 -5
Average 38.1 1593581 -0.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.1 hedge funds with bullish positions and the average amount invested in these stocks was $1594 million. That figure was $818 million in PSA’s case. Electronic Arts Inc. (NASDAQ:EA) is the most popular stock in this table. On the other hand Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG) is the least popular one with only 8 bullish hedge fund positions. Public Storage (NYSE:PSA) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for PSA is 23.2. 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. 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 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 surpassed the market again by 15.8 percentage points. Unfortunately PSA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PSA investors were disappointed as the stock returned 1.4% since the end of September (through 12/14) 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 in 2020.

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