Is PennantPark Investment Corp. (PNNT) A Good Stock To Buy?
At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards PennantPark Investment Corp. (NASDAQ:PNNT).
PennantPark Investment Corp. (NASDAQ:PNNT) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 6 hedge funds' portfolios at the end of September. Our calculations also showed that PNNT isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare PNNT to other stocks including MICT, Inc. (NASDAQ:MICT), Commercial Vehicle Group, Inc. (NASDAQ:CVGI), and Horizon Technology Finance Corp (NASDAQ:HRZN) to get a better sense of its popularity.
Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Bruce Kovner of Caxton Associates LP
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, 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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. You can subscribe to our free daily newsletter on our website. Now let's take a look at the recent hedge fund action surrounding PennantPark Investment Corp. (NASDAQ:PNNT).
How are hedge funds trading PennantPark Investment Corp. (NASDAQ:PNNT)?
Heading into the fourth quarter of 2020, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in PNNT over the last 21 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in PennantPark Investment Corp. (NASDAQ:PNNT) was held by Arrowstreet Capital, which reported holding $4.2 million worth of stock at the end of September. It was followed by Two Sigma Advisors with a $1.7 million position. Other investors bullish on the company included Callodine Capital Management, Caxton Associates LP, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Callodine Capital Management allocated the biggest weight to PennantPark Investment Corp. (NASDAQ:PNNT), around 0.88% of its 13F portfolio. Caxton Associates LP is also relatively very bullish on the stock, designating 0.02 percent of its 13F equity portfolio to PNNT.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Millennium Management. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was D E Shaw).
Let's check out hedge fund activity in other stocks similar to PennantPark Investment Corp. (NASDAQ:PNNT). These stocks are MICT, Inc. (NASDAQ:MICT), Commercial Vehicle Group, Inc. (NASDAQ:CVGI), Horizon Technology Finance Corp (NASDAQ:HRZN), Auryn Resources Inc. (NYSE:AUG), Priority Technology Holdings, Inc. (NASDAQ:PRTH), StarTek, Inc. (NYSE:SRT), and Southern National Bancorp of Virginia, Inc (NASDAQ:SONA). This group of stocks' market valuations match PNNT's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MICT,2,263,1 CVGI,12,35587,-1 HRZN,2,2270,0 AUG,5,3610,2 PRTH,2,1652,-1 SRT,2,4387,-1 SONA,9,8507,-1 Average,4.9,8039,-0.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.9 hedge funds with bullish positions and the average amount invested in these stocks was $8 million. That figure was $8 million in PNNT's case. Commercial Vehicle Group, Inc. (NASDAQ:CVGI) is the most popular stock in this table. On the other hand MICT, Inc. (NASDAQ:MICT) is the least popular one with only 2 bullish hedge fund positions. PennantPark Investment Corp. (NASDAQ:PNNT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PNNT is 40. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. Hedge funds were also right about betting on PNNT as the stock returned 44.2% since the end of Q3 (through 11/27) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
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