Should You Avoid Palo Alto Networks Inc (PANW)?

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The S&P 500 Index gained 7.6% in the 12 month-period that ended November 21, while less than 49% of its stocks beat the benchmark. In contrast, the 30 most popular mid-cap stocks among the top hedge fund investors tracked by the Insider Monkey team returned 18% over the same period, which provides evidence that these money managers do have great stock picking abilities. 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 Palo Alto Networks Inc (NYSE:PANW) .

Is Palo Alto Networks Inc (NYSE:PANW) a great investment today? Money managers are actually selling. The number of bullish hedge fund investments retreated by 2 recently. PANW was in 35 hedge funds’ portfolios at the end of September. There were 37 hedge funds in our database with PANW positions at the end of the previous quarter. At the end of this article we will also compare PANW to other stocks including Interactive Brokers Group, Inc. (NASDAQ:IBKR), Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX), and SK Telecom Co., Ltd. (ADR) (NYSE:SKM) to get a better sense of its popularity.

We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.

What does the smart money think about Palo Alto Networks Inc (NYSE:PANW)?

At the end of the third quarter, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a drop of 5% from the previous quarter. On the other hand, there were a total of 50 hedge funds with a bullish position in PANW at the beginning of this year. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, SRS Investment Management, led by Karthik Sarma, holds the number one position in Palo Alto Networks Inc (NYSE:PANW). SRS Investment Management has a $361.8 million position in the stock, comprising 9.6% of its 13F portfolio. Coming in second is Jim Simons’ Renaissance Technologies holding a $236.1 million position. Other peers with similar optimism encompass Christopher Lord’s Criterion Capital, Anand Parekh’s Alyeska Investment Group and Christopher James’ Partner Fund Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Now that we’ve mentioned the most bullish investors, let’s also take a look at some funds that cashed in their entire stakes in the stock during the third quarter. At the top of the heap, Ken Griffin’s Citadel Investment Group cashed in the largest position of the “upper crust” of funds studied by Insider Monkey, valued at close to $33.7 million in call options. Dennis Puri and Oliver Keller’s fund, Hunt Lane Capital, also dropped its stock, about $16.1 million worth.

Let’s go over hedge fund activity in other stocks similar to Palo Alto Networks Inc (NYSE:PANW). These stocks are Interactive Brokers Group, Inc. (NASDAQ:IBKR), Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX), SK Telecom Co., Ltd. (ADR) (NYSE:SKM), and Credicorp Ltd. (USA) (NYSE:BAP). All of these stocks’ market caps resemble PANW’s market cap.

As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $675 million. That figure was $1.4 billion in PANW’s case. Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) is the most popular stock in this table. On the other hand SK Telecom Co., Ltd. (ADR) (NYSE:SKM) is the least popular one with only 12 bullish hedge fund positions. Palo Alto Networks Inc (NYSE:PANW) 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. In this regard FCX might be a better candidate to consider taking a long position in.

Disclosure: None