Were Hedge Funds Right About PagerDuty, Inc. (PD)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of PagerDuty, Inc. (NYSE:PD).

PagerDuty, Inc. (NYSE:PD) has experienced an increase in activity from the world’s largest hedge funds recently. Our calculations also showed that PD 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).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Chase Coleman of Tiger Global

We leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). 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 key hedge fund action encompassing PagerDuty, Inc. (NYSE:PD).

What have hedge funds been doing with PagerDuty, Inc. (NYSE:PD)?

At Q4’s end, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of 36% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards PD over the last 18 quarters. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

More specifically, Point72 Asset Management was the largest shareholder of PagerDuty, Inc. (NYSE:PD), with a stake worth $6.8 million reported as of the end of September. Trailing Point72 Asset Management was Kayak Investment Partners, which amassed a stake valued at $4.6 million. Adams Street Partners, Citadel Investment Group, and Tiger Global Management LLC 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 Kayak Investment Partners allocated the biggest weight to PagerDuty, Inc. (NYSE:PD), around 2.77% of its 13F portfolio. Adams Street Partners is also relatively very bullish on the stock, setting aside 0.94 percent of its 13F equity portfolio to PD.

With a general bullishness amongst the heavyweights, some big names were leading the bulls’ herd. Point72 Asset Management, managed by Steve Cohen, created the biggest position in PagerDuty, Inc. (NYSE:PD). Point72 Asset Management had $6.8 million invested in the company at the end of the quarter. Jeffrey Diehl’s Adams Street Partners also made a $4.6 million investment in the stock during the quarter. The following funds were also among the new PD investors: Michael Gelband’s ExodusPoint Capital, Francis Cueto’s Asturias Capital, and John Overdeck and David Siegel’s Two Sigma Advisors.

Let’s also examine hedge fund activity in other stocks similar to PagerDuty, Inc. (NYSE:PD). These stocks are Vonage Holdings Corp. (NASDAQ:VG), Diversified Healthcare Trust (NASDAQ:SNH), iRhythm Technologies, Inc. (NASDAQ:IRTC), and Horace Mann Educators Corporation (NYSE:HMN). All of these stocks’ market caps are similar to PD’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VG 35 269101 2
SNH 9 32625 -4
IRTC 22 222026 3
HMN 11 29285 -3
Average 19.25 138259 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $138 million. That figure was $33 million in PD’s case. Vonage Holdings Corp. (NASDAQ:VG) is the most popular stock in this table. On the other hand Diversified Healthcare Trust (NASDAQ:SNH) is the least popular one with only 9 bullish hedge fund positions. PagerDuty, Inc. (NYSE:PD) 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately PD wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PD investors were disappointed as the stock returned -26.2% 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 20 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.