Were Hedge Funds Right About Penumbra Inc (PEN)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Penumbra Inc (NYSE:PEN) and determine whether hedge funds had an edge regarding this stock.

Penumbra Inc (NYSE:PEN) investors should pay attention to a decrease in activity from the world’s largest hedge funds in recent months. PEN was in 20 hedge funds’ portfolios at the end of the first quarter of 2020. There were 30 hedge funds in our database with PEN holdings at the end of the previous quarter. Our calculations also showed that PEN isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

If you’d ask most traders, hedge funds are viewed as underperforming, old financial vehicles of years past. While there are more than 8000 funds with their doors open today, We look at the bigwigs of this group, about 850 funds. These hedge fund managers command most of the hedge fund industry’s total capital, and by watching their unrivaled equity investments, Insider Monkey has spotted numerous investment strategies that have historically defeated the broader indices. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

William Harnisch

William Harnisch of Peconic Partners LLC

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind we’re going to view the recent hedge fund action encompassing Penumbra Inc (NYSE:PEN).

Hedge fund activity in Penumbra Inc (NYSE:PEN)

At the end of the first quarter, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -33% from the previous quarter. By comparison, 20 hedge funds held shares or bullish call options in PEN a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

Is PEN A Good Stock To Buy?

More specifically, Generation Investment Management was the largest shareholder of Penumbra Inc (NYSE:PEN), with a stake worth $116.4 million reported as of the end of September. Trailing Generation Investment Management was Rock Springs Capital Management, which amassed a stake valued at $36.3 million. Columbus Circle Investors, Partner Fund Management, and Adage 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 Partner Fund Management allocated the biggest weight to Penumbra Inc (NYSE:PEN), around 1.57% of its 13F portfolio. Rock Springs Capital Management is also relatively very bullish on the stock, setting aside 1.5 percent of its 13F equity portfolio to PEN.

Seeing as Penumbra Inc (NYSE:PEN) has faced a decline in interest from the aggregate hedge fund industry, we can see that there were a few hedge funds that slashed their full holdings heading into Q4. At the top of the heap, Steve Cohen’s Point72 Asset Management sold off the largest investment of the “upper crust” of funds tracked by Insider Monkey, valued at an estimated $20.2 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund dropped about $7.7 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 10 funds heading into Q4.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Penumbra Inc (NYSE:PEN) but similarly valued. We will take a look at Federal Realty Investment Trust (NYSE:FRT), AMERCO (NASDAQ:UHAL), argenx SE (NASDAQ:ARGX), and Elbit Systems Ltd. (NASDAQ:ESLT). This group of stocks’ market caps are similar to PEN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FRT 24 78227 2
UHAL 15 318275 -2
ARGX 25 588505 -1
ESLT 6 13855 3
Average 17.5 249716 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $250 million. That figure was $247 million in PEN’s case. argenx SE (NASDAQ:ARGX) is the most popular stock in this table. On the other hand Elbit Systems Ltd. (NASDAQ:ESLT) is the least popular one with only 6 bullish hedge fund positions. Penumbra Inc (NYSE:PEN) is not the most popular stock in this group but hedge fund interest is still above average. 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 18.6% in 2020 through July 27th but still beat the market by 17.1 percentage points. Hedge funds were also right about betting on PEN, though not to the same extent, as the stock returned 32% since the end of March and outperformed the market as well.

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