Should I Buy Patterson Companies, Inc. (PDCO)?

In this article you are going to find out whether hedge funds think Patterson Companies, Inc. (NASDAQ:PDCO) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is Patterson Companies, Inc. (NASDAQ:PDCO) a buy right now? The best stock pickers were in a bullish mood. The number of long hedge fund bets improved by 2 recently. Patterson Companies, Inc. (NASDAQ:PDCO) was in 20 hedge funds’ portfolios at the end of March. The all time high for this statistic is 29. Our calculations also showed that PDCO isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

Justin John Ferayorni - Tamarack Capital Management

Justin John Ferayorni of Tamarack Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 homepage. Now we’re going to take a peek at the new hedge fund action encompassing Patterson Companies, Inc. (NASDAQ:PDCO).

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

At the end of the first quarter, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from one quarter earlier. On the other hand, there were a total of 17 hedge funds with a bullish position in PDCO a year ago. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

The largest stake in Patterson Companies, Inc. (NASDAQ:PDCO) was held by GAMCO Investors, which reported holding $34 million worth of stock at the end of December. It was followed by Tamarack Capital Management with a $24.6 million position. Other investors bullish on the company included Millennium Management, Lodge Hill Capital, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Lodge Hill Capital allocated the biggest weight to Patterson Companies, Inc. (NASDAQ:PDCO), around 5.41% of its 13F portfolio. Tamarack Capital Management is also relatively very bullish on the stock, dishing out 5.05 percent of its 13F equity portfolio to PDCO.

As industrywide interest jumped, specific money managers were breaking ground themselves. Tamarack Capital Management, managed by Justin John Ferayorni, assembled the largest position in Patterson Companies, Inc. (NASDAQ:PDCO). Tamarack Capital Management had $24.6 million invested in the company at the end of the quarter. Clint Murray’s Lodge Hill Capital also initiated a $13.7 million position during the quarter. The other funds with new positions in the stock are Peter Muller’s PDT Partners, Donald Sussman’s Paloma Partners, and Bruce Kovner’s Caxton Associates LP.

Let’s now review hedge fund activity in other stocks similar to Patterson Companies, Inc. (NASDAQ:PDCO). These stocks are Sprout Social, Inc. (NASDAQ:SPT), Lexington Realty Trust (NYSE:LXP), Steven Madden, Ltd. (NASDAQ:SHOO), Pacira Biosciences Inc (NASDAQ:PCRX), Antero Resources Corp (NYSE:AR), Acushnet Holdings Corp. (NYSE:GOLF), and Alamos Gold Inc (NYSE:AGI). All of these stocks’ market caps match PDCO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SPT 24 283496 -6
LXP 12 33985 0
SHOO 19 140715 5
PCRX 20 547351 0
AR 33 609879 2
GOLF 19 40986 6
AGI 22 267948 5
Average 21.3 274909 1.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.3 hedge funds with bullish positions and the average amount invested in these stocks was $275 million. That figure was $142 million in PDCO’s case. Antero Resources Corp (NYSE:AR) is the most popular stock in this table. On the other hand Lexington Realty Trust (NYSE:LXP) is the least popular one with only 12 bullish hedge fund positions. Patterson Companies, Inc. (NASDAQ:PDCO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for PDCO is 46.7. 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 23.8% in 2021 through July 16th and surpassed the market again by 7.7 percentage points. Unfortunately PDCO wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); PDCO investors were disappointed as the stock returned -5.3% since the end of March (through 7/16) 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.