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 Pacific Biosciences of California (NASDAQ:PACB).
Pacific Biosciences of California (NASDAQ:PACB) was in 28 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic was previously 25. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. PACB shareholders have witnessed an increase in hedge fund interest in recent months. There were 24 hedge funds in our database with PACB holdings at the end of March. Our calculations also showed that PACB isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).
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Felix Baker of Baker Bros.
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Do Hedge Funds Think PACB Is A Good Stock To Buy Now?
Heading into the third quarter of 2021, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from the previous quarter. By comparison, 22 hedge funds held shares or bullish call options in PACB a year ago. With the smart money's sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
The largest stake in Pacific Biosciences of California (NASDAQ:PACB) was held by ARK Investment Management, which reported holding $716.2 million worth of stock at the end of June. It was followed by SB Management with a $344.8 million position. Other investors bullish on the company included Casdin Capital, Baker Bros. Advisors, and Viking Global. In terms of the portfolio weights assigned to each position Casdin Capital allocated the biggest weight to Pacific Biosciences of California (NASDAQ:PACB), around 4.44% of its 13F portfolio. SB Management is also relatively very bullish on the stock, dishing out 4.05 percent of its 13F equity portfolio to PACB.
Consequently, key hedge funds have jumped into Pacific Biosciences of California (NASDAQ:PACB) headfirst. Senator Investment Group, managed by Doug Silverman and Alexander Klabin, assembled the most valuable position in Pacific Biosciences of California (NASDAQ:PACB). Senator Investment Group had $19.2 million invested in the company at the end of the quarter. Farallon Capital also initiated a $8.7 million position during the quarter. The following funds were also among the new PACB investors: Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Joe DiMenna's ZWEIG DIMENNA PARTNERS, and D. E. Shaw's D E Shaw.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Pacific Biosciences of California (NASDAQ:PACB) but similarly valued. We will take a look at BanColombia S.A. (NYSE:CIB), BlackBerry Limited (NYSE:BB), Leggett & Platt, Inc. (NYSE:LEG), Post Holdings Inc (NYSE:POST), Bumble Inc. (NASDAQ:BMBL), Fastly, Inc. (NYSE:FSLY), and Boyd Gaming Corporation (NYSE:BYD). All of these stocks' market caps match PACB's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CIB,3,62898,0 BB,20,732386,-4 LEG,14,106360,-10 POST,31,1514333,-2 BMBL,23,299269,-6 FSLY,24,1140190,-2 BYD,36,534864,14 Average,21.6,627186,-1.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.6 hedge funds with bullish positions and the average amount invested in these stocks was $627 million. That figure was $1645 million in PACB's case. Boyd Gaming Corporation (NYSE:BYD) is the most popular stock in this table. On the other hand BanColombia S.A. (NYSE:CIB) is the least popular one with only 3 bullish hedge fund positions. Pacific Biosciences of California (NASDAQ:PACB) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PACB is 76.9. 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24.9% in 2021 through October 15th and beat the market again by 4.5 percentage points. Unfortunately PACB wasn't nearly as popular as these 5 stocks and hedge funds that were betting on PACB were disappointed as the stock returned -30.3% since the end of June (through 10/15) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.