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Were Hedge Funds Right About Snapping Up Prestige Consumer Healthcare Inc. (PBH)?

The first quarter was a breeze as Powell pivoted, and China seemed eager to reach a deal with Trump. Both the S&P 500 and Russell 2000 delivered very strong gains as a result, with the Russell 2000, which is composed of smaller companies, outperforming the large-cap stocks slightly during the first quarter. Unfortunately sentiment shifted in May and August as this time China pivoted and Trump put more pressure on China by increasing tariffs. Hedge funds’ top 20 stock picks performed spectacularly in this volatile environment. These stocks delivered a total gain of 24.4% through September 30th, vs. a gain of 20.4% for the S&P 500 ETF. In this article we will look at how this market volatility affected the sentiment of hedge funds towards Prestige Consumer Healthcare Inc. (NYSE:PBH), and what that likely means for the prospects of the company and its stock.

Prestige Consumer Healthcare Inc. (NYSE:PBH) shareholders have witnessed an increase in hedge fund sentiment recently. PBH was in 15 hedge funds’ portfolios at the end of the second quarter of 2019. There were 13 hedge funds in our database with PBH positions at the end of the previous quarter. Our calculations also showed that PBH isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Lee Ainslie MAVERICK CAPITAL

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s analyze the recent hedge fund action encompassing Prestige Consumer Healthcare Inc. (NYSE:PBH).

What does smart money think about Prestige Consumer Healthcare Inc. (NYSE:PBH)?

At the end of the second quarter, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 15% from the previous quarter. By comparison, 12 hedge funds held shares or bullish call options in PBH a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with PBH Positions

The largest stake in Prestige Consumer Healthcare Inc. (NYSE:PBH) was held by Fisher Asset Management, which reported holding $34.2 million worth of stock at the end of March. It was followed by GLG Partners with a $13.7 million position. Other investors bullish on the company included Arrowstreet Capital, D E Shaw, and Maverick Capital.

As aggregate interest increased, specific money managers have jumped into Prestige Consumer Healthcare Inc. (NYSE:PBH) headfirst. Maverick Capital, managed by Lee Ainslie, assembled the biggest position in Prestige Consumer Healthcare Inc. (NYSE:PBH). Maverick Capital had $2.4 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $0.9 million position during the quarter. The other funds with brand new PBH positions are Peter Algert and Kevin Coldiron’s Algert Coldiron Investors, Israel Englander’s Millennium Management, and Philippe Laffont’s Coatue Management.

Let’s now review hedge fund activity in other stocks similar to Prestige Consumer Healthcare Inc. (NYSE:PBH). We will take a look at Sogou Inc. (NYSE:SOGO), Central Garden & Pet Company (NASDAQ:CENT), Asbury Automotive Group, Inc. (NYSE:ABG), and Dril-Quip, Inc. (NYSE:DRQ). This group of stocks’ market caps match PBH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SOGO 5 1243 -3
CENT 19 136104 3
ABG 17 224636 2
DRQ 18 158872 1
Average 14.75 130214 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $130 million. That figure was $66 million in PBH’s case. Central Garden & Pet Company (NASDAQ:CENT) is the most popular stock in this table. On the other hand Sogou Inc. (NYSE:SOGO) is the least popular one with only 5 bullish hedge fund positions. Prestige Consumer Healthcare Inc. (NYSE:PBH) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on PBH as the stock returned 9.5% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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