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 Pinterest, Inc. (NYSE:PINS) and determine whether hedge funds had an edge regarding this stock.
Pinterest, Inc. (NYSE:PINS) investors should be aware of an increase in hedge fund interest recently. Pinterest, Inc. (NYSE:PINS) was in 53 hedge funds' portfolios at the end of June. This is the new all time high for this statistics. Our calculations also showed that PINS isn't among the 30 most popular stocks among hedge funds (click for Q2 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.
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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 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.
Gabriel Plotkin Melvin Capital Management
Gabriel Plotkin of Melvin Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America 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 analyze the recent hedge fund action encompassing Pinterest, Inc. (NYSE:PINS).
What does smart money think about Pinterest, Inc. (NYSE:PINS)?
At Q2's end, a total of 53 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 39% from the previous quarter. The graph below displays the number of hedge funds with bullish position in PINS over the last 20 quarters. With the smart money's sentiment swirling, there exists a few notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
More specifically, Eminence Capital was the largest shareholder of Pinterest, Inc. (NYSE:PINS), with a stake worth $127.1 million reported as of the end of September. Trailing Eminence Capital was Melvin Capital Management, which amassed a stake valued at $97.5 million. Select Equity Group, Citadel Investment Group, and Holocene Advisors 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 Empirical Capital Partners allocated the biggest weight to Pinterest, Inc. (NYSE:PINS), around 13.61% of its 13F portfolio. Nishkama Capital is also relatively very bullish on the stock, dishing out 8.52 percent of its 13F equity portfolio to PINS.
As industrywide interest jumped, some big names have jumped into Pinterest, Inc. (NYSE:PINS) headfirst. Melvin Capital Management, managed by Gabriel Plotkin, assembled the biggest position in Pinterest, Inc. (NYSE:PINS). Melvin Capital Management had $97.5 million invested in the company at the end of the quarter. Robert Joseph Caruso's Select Equity Group also made a $93.6 million investment in the stock during the quarter. The other funds with brand new PINS positions are Brandon Haley's Holocene Advisors, Josh Resnick's Jericho Capital Asset Management, and Steve Cohen's Point72 Asset Management.
Let's now take a look at hedge fund activity in other stocks similar to Pinterest, Inc. (NYSE:PINS). These stocks are Avangrid, Inc. (NYSE:AGR), Burlington Stores Inc (NYSE:BURL), Synchrony Financial (NYSE:SYF), FMC Corporation (NYSE:FMC), Galapagos NV (NASDAQ:GLPG), Martin Marietta Materials, Inc. (NYSE:MLM), and Carnival Corporation & Plc (NYSE:CCL). All of these stocks' market caps are closest to PINS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AGR,18,132976,0 BURL,38,1475273,-2 SYF,46,1563925,9 FMC,42,548601,3 GLPG,13,151392,-2 MLM,51,1593527,7 CCL,31,362150,0 Average,34.1,832549,2.1 [/table]
As you can see these stocks had an average of 34.1 hedge funds with bullish positions and the average amount invested in these stocks was $833 million. That figure was $1067 million in PINS's case. Martin Marietta Materials, Inc. (NYSE:MLM) is the most popular stock in this table. On the other hand Galapagos NV (NASDAQ:GLPG) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Pinterest, Inc. (NYSE:PINS) is more popular among hedge funds. Our overall hedge fund sentiment score for PINS is 90. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 returned 33% in 2020 through the end of August but still managed to beat the market by 23.2 percentage points. Hedge funds were also right about betting on PINS as the stock returned 65.9% since the end of June and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
