Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Let’s take a brief look at what statistics has to say about hedge funds’ stock picking abilities. The Standard and Poor’s 500 Index returned approximately 5.2% in the 12 months ending October 30, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, hedge funds’ 30 preferred S&P 500 stocks (as of September 2014) generated a return of 9.5% during the same 12-month period, while 63% of these stock picks outperformed the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 16-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Palo Alto Networks Inc (NYSE:PANW).
Palo Alto Networks Inc (NYSE:PANW) has experienced an increase in hedge fund interest in recent months. Palo Alto Networks Inc (NYSE:PANW) was in 47 hedge funds’ portfolios at the end of the third quarter of 2015. There were 45 hedge funds in our database with Palo Alto Networks Inc (NYSE:PANW) positions at the end of the previous quarter. At the end of this article, we will also compare Palo Alto Networks Inc (NYSE:PANW) to other stocks including Check Point Software Technologies Ltd. (NASDAQ:CHKP), National-Oilwell Varco, Inc. (NYSE:NOV), and DTE Energy Co (NYSE:DTE) to get a better sense of its popularity.
If you’d ask most stock holders, hedge funds are assumed to be worthless, outdated investment tools of yesteryear. While there are more than 8,000 funds in operation today, hedge fund experts at Insider Monkey hone in on the upper echelon of this club, about 700 funds. These money managers orchestrate the bulk of the hedge fund industry’s total capital, and by monitoring their best stock picks, Insider Monkey has found numerous investment strategies that have historically exceeded Mr. Market. Insider Monkey’s small-cap hedge fund strategy outpaced the S&P 500 index by 12 percentage points per annum for a decade in their back tests.
Now, we’re going to check out the recent action encompassing Palo Alto Networks Inc (NYSE:PANW).
How have hedgies been trading Palo Alto Networks Inc (NYSE:PANW)?
At the end of Q3, a total of 47 of the hedge funds tracked by Insider Monkey were bullish in this stock, an increase of 4% from one quarter earlier. With hedgies’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Clifford Fox’s Columbus Circle Investors has the largest position in Palo Alto Networks Inc (NYSE:PANW), worth close to $121.2 million, comprising 1% of its total 13F portfolio. The second-most bullish hedge fund manager is Renaissance Technologies, holding a $108.4 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish include Christopher Medlock James’ Partner Fund Management, Israel Englander’s Millennium Management, and Ken Griffin’s Citadel Investment Group.
With general bullishness amongst the heavyweights, some big names have been driving this bullishness. ZWEIG DIMENNA PARTNERS, managed by Joe DiMenna, assembled the largest position in Palo Alto Networks Inc (NYSE:PANW). ZWEIG DIMENNA PARTNERS had $23.5 million invested in the company at the end of the quarter. Anand Parekh’s Alyeska Investment Group also made a $19.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Frank Slattery’s Symmetry Peak Management, Jane Mendillo’s Harvard Management Co, and David Costen Haley’s HBK Investments.
Let’s also review hedge fund activity in other stocks similar to Palo Alto Networks Inc (NYSE:PANW). These stocks are Check Point Software Technologies Ltd. (NASDAQ:CHKP), National-Oilwell Varco, Inc. (NYSE:NOV), DTE Energy Co (NYSE:DTE), and Republic Services, Inc. (NYSE:RSG). This group of stocks’ market caps are similar to Palo Alto Networks Inc (NYSE:PANW)’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 26.5 hedge funds with bullish positions and the average amount invested in these stocks was $922 million. Check Point Software Technologies Ltd. (NASDAQ:CHKP) is the most popular stock in this table. On the other hand DTE Energy Co (NYSE:DTE) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Palo Alto Networks Inc (NYSE:PANW) is more popular among hedge funds. Considering that hedge funds are fond of this stock, it may be a good idea to analyze it in detail and potentially include it in your portfolio.