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Should You Avoid Pan American Silver Corp. (PAAS)?

Is Pan American Silver Corp. (NASDAQ:PAAS) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, expert networks, and get tips from industry insiders. They sometimes fail miserably but historically their consensus stock picks outperformed the market after adjusting for known risk factors.

Pan American Silver Corp. (NASDAQ:PAAS) was in 15 hedge funds’ portfolios at the end of September. PAAS investors should pay attention to a decrease in hedge fund sentiment lately. There were 16 hedge funds in our database with PAAS holdings at the end of the previous quarter. Our calculations also showed that paas isn’t among the 30 most popular stocks among hedge funds.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Izzy Englander of MILLENNIUM MANAGEMENT

Let’s take a glance at the latest hedge fund action regarding Pan American Silver Corp. (NASDAQ:PAAS).

What have hedge funds been doing with Pan American Silver Corp. (NASDAQ:PAAS)?

Heading into the fourth quarter of 2018, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the previous quarter. On the other hand, there were a total of 13 hedge funds with a bullish position in PAAS at the beginning of this year. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

No of Hedge Funds with PAAS Positions

The largest stake in Pan American Silver Corp. (NASDAQ:PAAS) was held by Renaissance Technologies, which reported holding $85 million worth of stock at the end of September. It was followed by Sprott Asset Management with a $16.2 million position. Other investors bullish on the company included Millennium Management, PEAK6 Capital Management, and PEAK6 Capital Management.

Due to the fact that Pan American Silver Corp. (NASDAQ:PAAS) has faced falling interest from the smart money, we can see that there exists a select few money managers that elected to cut their entire stakes last quarter. Interestingly, David Halpert’s Prince Street Capital Management said goodbye to the biggest position of all the hedgies watched by Insider Monkey, worth about $4.3 million in stock. Richard Driehaus’s fund, Driehaus Capital, also dropped its stock, about $2 million worth. These moves are interesting, as total hedge fund interest was cut by 1 funds last quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Pan American Silver Corp. (NASDAQ:PAAS) but similarly valued. These stocks are American States Water Co (NYSE:AWR), Cott Corporation (NYSE:COT), Cision Ltd. (NYSE:CISN), and CONMED Corporation (NASDAQ:CNMD). This group of stocks’ market valuations are similar to PAAS’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AWR 12 56951 4
COT 25 581805 2
CISN 17 134540 1
CNMD 21 228787 3
Average 18.75 250521 2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $251 million. That figure was $127 million in PAAS’s case. Cott Corporation (NYSE:COT) is the most popular stock in this table. On the other hand American States Water Co (NYSE:AWR) is the least popular one with only 12 bullish hedge fund positions. Pan American Silver Corp. (NASDAQ:PAAS) 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. In this regard COT might be a better candidate to consider a long position.

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

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