Were Hedge Funds Right About Palomar Holdings, Inc. (PLMR)?

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (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. Keeping this in mind, let’s analyze whether Palomar Holdings, Inc. (NASDAQ:PLMR) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.

Palomar Holdings, Inc. (NASDAQ:PLMR) investors should pay attention to a decrease in activity from the world’s largest hedge funds in recent months. PLMR was in 8 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 13 hedge funds in our database with PLMR holdings at the end of the previous quarter. Our calculations also showed that PLMR 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).

Richard Driehaus of Driehaus Capital

We leave no stone unturned when looking for the next great investment idea. For example, COVID-19 pandemic is still the main driver of stock prices. So we are checking out this trader’s corona catalyst trades. 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. Keeping this in mind let’s take a look at the recent hedge fund action surrounding Palomar Holdings, Inc. (NASDAQ:PLMR).

What does smart money think about Palomar Holdings, Inc. (NASDAQ:PLMR)?

At Q4’s end, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -38% from the previous quarter. The graph below displays the number of hedge funds with bullish position in PLMR over the last 18 quarters. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

Is PLMR A Good Stock To Buy?

The largest stake in Palomar Holdings, Inc. (NASDAQ:PLMR) was held by Driehaus Capital, which reported holding $18.6 million worth of stock at the end of September. It was followed by Brant Point Investment Management with a $5.1 million position. Other investors bullish on the company included Millennium Management, PDT Partners, and Point72 Asset Management. In terms of the portfolio weights assigned to each position Brant Point Investment Management allocated the biggest weight to Palomar Holdings, Inc. (NASDAQ:PLMR), around 0.52% of its 13F portfolio. Driehaus Capital is also relatively very bullish on the stock, designating 0.49 percent of its 13F equity portfolio to PLMR.

Since Palomar Holdings, Inc. (NASDAQ:PLMR) has experienced a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there were a few hedge funds that elected to cut their positions entirely by the end of the third quarter. At the top of the heap, Stuart J. Zimmer’s Zimmer Partners said goodbye to the biggest investment of all the hedgies followed by Insider Monkey, totaling about $9.4 million in stock. Vivian Lau’s fund, One Tusk Investment Partners, also sold off its stock, about $1.9 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 5 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Palomar Holdings, Inc. (NASDAQ:PLMR) but similarly valued. We will take a look at The St. Joe Company (NYSE:JOE), Waddell & Reed Financial, Inc. (NYSE:WDR), KKR Real Estate Finance Trust Inc. (NYSE:KREF), and Denny’s Corporation (NASDAQ:DENN). This group of stocks’ market valuations resemble PLMR’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
JOE 10 576170 1
WDR 21 125127 1
KREF 9 38889 -2
DENN 21 158298 0
Average 15.25 224621 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $225 million. That figure was $30 million in PLMR’s case. Waddell & Reed Financial, Inc. (NYSE:WDR) is the most popular stock in this table. On the other hand KKR Real Estate Finance Trust Inc. (NYSE:KREF) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Palomar Holdings, Inc. (NASDAQ:PLMR) is even less popular than KREF. Hedge funds clearly dropped the ball on PLMR as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 still beat the market by 12.9 percentage points. A small number of hedge funds were also right about betting on PLMR as the stock returned 6.5% during the same time period and outperformed the market by an even larger margin.
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.