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Was The Smart Money Right About Primoris Services Corp (PRIM)?

Hedge funds don’t get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don’t realize is that 100% of the passive funds didn’t see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March. In this article we are going to take a closer look at hedge fund sentiment surrounding Primoris Services Corp (NASDAQ:PRIM).

Primoris Services Corp (NASDAQ:PRIM) investors should be aware of a decrease in enthusiasm from smart money of late. PRIM was in 11 hedge funds’ portfolios at the end of December. There were 14 hedge funds in our database with PRIM holdings at the end of the previous quarter. Our calculations also showed that PRIM isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 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. 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 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Chuck Royce

Chuck Royce of Royce & Associates

We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with high accuracy, so we check out his stock picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s analyze the new hedge fund action regarding Primoris Services Corp (NASDAQ:PRIM).

How are hedge funds trading Primoris Services Corp (NASDAQ:PRIM)?

At the end of the fourth quarter, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -21% from the previous quarter. On the other hand, there were a total of 9 hedge funds with a bullish position in PRIM a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Divisar Capital was the largest shareholder of Primoris Services Corp (NASDAQ:PRIM), with a stake worth $9.9 million reported as of the end of September. Trailing Divisar Capital was Royce & Associates, which amassed a stake valued at $8.2 million. Citadel Investment Group, Algert Coldiron Investors, and AQR Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Divisar Capital allocated the biggest weight to Primoris Services Corp (NASDAQ:PRIM), around 2.8% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, designating 0.59 percent of its 13F equity portfolio to PRIM.

Judging by the fact that Primoris Services Corp (NASDAQ:PRIM) has experienced a decline in interest from the aggregate hedge fund industry, we can see that there were a few fund managers that elected to cut their positions entirely last quarter. Intriguingly, Minhua Zhang’s Weld Capital Management said goodbye to the largest investment of all the hedgies tracked by Insider Monkey, valued at about $0.8 million in stock. Donald Sussman’s fund, Paloma Partners, also sold off its stock, about $0.5 million worth. These moves are interesting, as total hedge fund interest dropped by 3 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to Primoris Services Corp (NASDAQ:PRIM). These stocks are Arch Coal, Inc. (NYSE:ARCH), Warrior Met Coal, Inc. (NYSE:HCC), Nexa Resources S.A. (NYSE:NEXA), and OneSmart International Education Group Limited (NYSE:ONE). This group of stocks’ market values match PRIM’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ARCH 26 197756 -1
HCC 29 254959 0
NEXA 5 5135 -2
ONE 8 71081 0
Average 17 132233 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $132 million. That figure was $33 million in PRIM’s case. Warrior Met Coal, Inc. (NYSE:HCC) is the most popular stock in this table. On the other hand Nexa Resources S.A. (NYSE:NEXA) is the least popular one with only 5 bullish hedge fund positions. Primoris Services Corp (NASDAQ:PRIM) 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately PRIM wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); PRIM investors were disappointed as the stock returned -32.2% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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