Pure Storage, Inc. (PSTG) vs. Hedge Fund Favorites in 2019

It has been a fantastic year for equity investors as Donald Trump pressured Federal Reserve to reduce interest rates and finalized the first leg of a trade deal with China. If you were a passive index fund investor, you had seen gains of 31% in your equity portfolio in 2019. However, if you were an active investor putting your money into hedge funds’ favorite stocks, you had seen gains of more than 41%. In this article we are going to take a look at how hedge funds feel about a stock like Pure Storage, Inc. (NYSE:PSTG) and compare its performance against hedge funds’ favorite stocks.

Pure Storage, Inc. (NYSE:PSTG) was in 32 hedge funds’ portfolios at the end of the third quarter of 2019. PSTG shareholders have witnessed an increase in hedge fund interest in recent months. There were 23 hedge funds in our database with PSTG positions at the end of the previous quarter. Our calculations also showed that PSTG isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ricky Sandler of Eminence Capital

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s take a look at the key hedge fund action surrounding Pure Storage, Inc. (NYSE:PSTG).

How are hedge funds trading Pure Storage, Inc. (NYSE:PSTG)?

At Q3’s end, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 39% from one quarter earlier. On the other hand, there were a total of 31 hedge funds with a bullish position in PSTG a year ago. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

Is PSTG A Good Stock To Buy?

According to Insider Monkey’s hedge fund database, Ricky Sandler’s Eminence Capital has the largest position in Pure Storage, Inc. (NYSE:PSTG), worth close to $140.1 million, comprising 1.7% of its total 13F portfolio. On Eminence Capital’s heels is Citadel Investment Group, managed by Ken Griffin, which holds a $126.7 million position; 0.1% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors with similar optimism encompass Renaissance Technologies, Ahmet Okumus’s Okumus Fund Management and David E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Okumus Fund Management allocated the biggest weight to Pure Storage, Inc. (NYSE:PSTG), around 13.32% of its 13F portfolio. Lucha Capital Management is also relatively very bullish on the stock, dishing out 6.32 percent of its 13F equity portfolio to PSTG.

With a general bullishness amongst the heavyweights, key money managers have jumped into Pure Storage, Inc. (NYSE:PSTG) headfirst. Balyasny Asset Management, managed by Dmitry Balyasny, initiated the biggest position in Pure Storage, Inc. (NYSE:PSTG). Balyasny Asset Management had $31.3 million invested in the company at the end of the quarter. Marcelo Desio’s Lucha Capital Management also made a $20.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Brandon Haley’s Holocene Advisors, James Crichton’s Hitchwood Capital Management, and John Brennan’s Sirios Capital Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Pure Storage, Inc. (NYSE:PSTG) but similarly valued. These stocks are Graphic Packaging Holding Company (NYSE:GPK), Healthcare Realty Trust Inc (NYSE:HR), Webster Financial Corporation (NYSE:WBS), and Telecom Argentina S.A. (NYSE:TEO). This group of stocks’ market caps match PSTG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GPK 33 500405 3
HR 12 44639 3
WBS 22 337629 0
TEO 4 29115 1
Average 17.75 227947 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $228 million. That figure was $691 million in PSTG’s case. Graphic Packaging Holding Company (NYSE:GPK) is the most popular stock in this table. On the other hand Telecom Argentina S.A. (NYSE:TEO) is the least popular one with only 4 bullish hedge fund positions. Pure Storage, Inc. (NYSE:PSTG) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately PSTG wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on PSTG were disappointed as the stock returned 5.7% in 2019 (through December 23rd) 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 many of these stocks already outperformed the market so far this year.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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