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PennantPark Investment Corp. (PNNT): Are Hedge Funds Right About This Stock?

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like PennantPark Investment Corp. (NASDAQ:PNNT).

Is PennantPark Investment Corp. (NASDAQ:PNNT) the right investment to pursue these days? Hedge funds are in a bullish mood. The number of long hedge fund positions advanced by 1 in recent months. Our calculations also showed that PNNT isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are plenty of formulas stock traders can use to grade their holdings. A duo of the less known formulas are hedge fund and insider trading interest. Our experts have shown that, historically, those who follow the top picks of the top hedge fund managers can outpace the S&P 500 by a solid amount (see the details here).

MILLENNIUM MANAGEMENT

Israel Englander of Millennium Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a peek at the new hedge fund action surrounding PennantPark Investment Corp. (NASDAQ:PNNT).

What have hedge funds been doing with PennantPark Investment Corp. (NASDAQ:PNNT)?

Heading into the fourth quarter of 2019, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from one quarter earlier. On the other hand, there were a total of 7 hedge funds with a bullish position in PNNT 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.

Among these funds, Arrowstreet Capital held the most valuable stake in PennantPark Investment Corp. (NASDAQ:PNNT), which was worth $8.9 million at the end of the third quarter. On the second spot was Millennium Management which amassed $3.1 million worth of shares. Two Sigma Advisors, McKinley Capital Management, and Ancora Advisors 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 McKinley Capital Management allocated the biggest weight to PennantPark Investment Corp. (NASDAQ:PNNT), around 0.13% of its 13F portfolio. Caxton Associates is also relatively very bullish on the stock, dishing out 0.05 percent of its 13F equity portfolio to PNNT.

As aggregate interest increased, some big names were leading the bulls’ herd. Citadel Investment Group, managed by Ken Griffin, created the biggest position in PennantPark Investment Corp. (NASDAQ:PNNT). Citadel Investment Group had $0.1 million invested in the company at the end of the quarter.

Let’s go over hedge fund activity in other stocks similar to PennantPark Investment Corp. (NASDAQ:PNNT). We will take a look at Donegal Group Inc (NASDAQ:DGICA), Puma Biotechnology Inc (NASDAQ:PBYI), Prevail Therapeutics Inc. (NASDAQ:PRVL), and Rosetta Stone Inc (NYSE:RST). This group of stocks’ market values match PNNT’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DGICA 6 10730 2
PBYI 17 120368 0
PRVL 9 270707 -2
RST 15 79812 3
Average 11.75 120404 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $120 million. That figure was $19 million in PNNT’s case. Puma Biotechnology Inc (NASDAQ:PBYI) is the most popular stock in this table. On the other hand Donegal Group Inc (NASDAQ:DGICA) is the least popular one with only 6 bullish hedge fund positions. PennantPark Investment Corp. (NASDAQ:PNNT) 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately PNNT wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PNNT investors were disappointed as the stock returned -1.4% during the first two months of the fourth 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 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

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

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