Should I Avoid Pegasystems Inc. (PEGA)?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 900 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Pegasystems Inc. (NASDAQ:PEGA) in this article.

Is Pegasystems Inc. (NASDAQ:PEGA) a superb investment now? Money managers were becoming less hopeful. The number of bullish hedge fund bets were trimmed by 2 lately. Pegasystems Inc. (NASDAQ:PEGA) was in 25 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 35. Our calculations also showed that PEGA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind let’s take a glance at the new hedge fund action surrounding Pegasystems Inc. (NASDAQ:PEGA).

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

At Q3’s end, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards PEGA over the last 25 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Brian Bares’s Bares Capital Management has the number one position in Pegasystems Inc. (NASDAQ:PEGA), worth close to $631.5 million, corresponding to 11.3% of its total 13F portfolio. The second largest stake is held by Luxor Capital Group, led by Christian Leone, holding a $406.8 million position; 3.6% of its 13F portfolio is allocated to the company. Remaining professional money managers that are bullish encompass Kevin Oram and Peter Uddo’s Praesidium Investment Management Company, Michael Pausic’s Foxhaven Asset Management and Ricky Sandler’s Eminence Capital. In terms of the portfolio weights assigned to each position Bares Capital Management allocated the biggest weight to Pegasystems Inc. (NASDAQ:PEGA), around 11.33% of its 13F portfolio. Praesidium Investment Management Company is also relatively very bullish on the stock, designating 11.2 percent of its 13F equity portfolio to PEGA.

Due to the fact that Pegasystems Inc. (NASDAQ:PEGA) has faced bearish sentiment from the smart money, it’s easy to see that there is a sect of hedgies who were dropping their positions entirely last quarter. Intriguingly, Ken Griffin’s Citadel Investment Group dumped the largest position of the 750 funds watched by Insider Monkey, comprising an estimated $47.3 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also dropped its stock, about $8.6 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds last quarter.

Let’s also examine hedge fund activity in other stocks similar to Pegasystems Inc. (NASDAQ:PEGA). These stocks are IAC/InterActiveCorp (NASDAQ:IAC), Aegon N.V. (NYSE:AEG), Tapestry, Inc. (NYSE:TPR), Watsco Inc (NYSE:WSO), agilon health inc. (NYSE:AGL), Oak Street Health, Inc. (NYSE:OSH), and QuantumScape Corporation (NYSE:QS). This group of stocks’ market caps resemble PEGA’s market cap.

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As you can see these stocks had an average of 26.4 hedge funds with bullish positions and the average amount invested in these stocks was $515 million. That figure was $1891 million in PEGA’s case. IAC/InterActiveCorp (NASDAQ:IAC) is the most popular stock in this table. On the other hand Aegon N.V. (NYSE:AEG) is the least popular one with only 5 bullish hedge fund positions. Pegasystems Inc. (NASDAQ:PEGA) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for PEGA is 48.2. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 31.1% in 2021 through December 9th and surpassed the market again by 5.1 percentage points. Unfortunately PEGA wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); PEGA investors were disappointed as the stock returned -11.1% since the end of September (through 12/9) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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