There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Jeff Ubben, George Soros and Carl Icahn think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don't cover. Because of Carl Icahn and other elite funds' exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Packaging Corporation Of America (NYSE:PKG).
Packaging Corporation Of America (NYSE:PKG) was in 21 hedge funds' portfolios at the end of the second quarter of 2019. PKG shareholders have witnessed a decrease in hedge fund sentiment in recent months. There were 26 hedge funds in our database with PKG positions at the end of the previous quarter. Our calculations also showed that PKG isn't among the 30 most popular stocks among hedge funds (see the video below). 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.
Unlike this former hedge fund manager 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. We're going to view the fresh hedge fund action surrounding Packaging Corporation Of America (NYSE:PKG).
How have hedgies been trading Packaging Corporation Of America (NYSE:PKG)?
Heading into the third quarter of 2019, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -19% from one quarter earlier. On the other hand, there were a total of 26 hedge funds with a bullish position in PKG a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
More specifically, Millennium Management was the largest shareholder of Packaging Corporation Of America (NYSE:PKG), with a stake worth $93.1 million reported as of the end of March. Trailing Millennium Management was AQR Capital Management, which amassed a stake valued at $65.9 million. Renaissance Technologies, Adage Capital Management, and Gotham Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.
Since Packaging Corporation Of America (NYSE:PKG) has witnessed declining sentiment from hedge fund managers, we can see that there was a specific group of hedgies that decided to sell off their positions entirely last quarter. Interestingly, Andrew Feldstein and Stephen Siderow's Blue Mountain Capital said goodbye to the biggest position of all the hedgies followed by Insider Monkey, totaling an estimated $7.2 million in stock, and Sara Nainzadeh's Centenus Global Management was right behind this move, as the fund cut about $2 million worth. These moves are interesting, as total hedge fund interest dropped by 5 funds last quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Packaging Corporation Of America (NYSE:PKG) but similarly valued. We will take a look at Whirlpool Corporation (NYSE:WHR), Black Knight, Inc. (NYSE:BKI), Lamb Weston Holdings, Inc. (NYSE:LW), and Huaneng Power International Inc (NYSE:HNP). This group of stocks' market values resemble PKG's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WHR,19,570500,1 BKI,45,1016444,5 LW,29,518866,-12 HNP,3,2350,0 Average,24,527040,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $527 million. That figure was $237 million in PKG's case. Black Knight, Inc. (NYSE:BKI) is the most popular stock in this table. On the other hand Huaneng Power International Inc (NYSE:HNP) is the least popular one with only 3 bullish hedge fund positions. Packaging Corporation Of America (NYSE:PKG) is not the least popular stock in this group but hedge fund interest is still below 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. A small number of hedge funds were also right about betting on PKG as the stock returned 12.1% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.