Were Hedge Funds Right About Crowding Into Pinterest, Inc. (PINS)?

Asma UL Husna
·6 min read

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 Pinterest, Inc. (NYSE:PINS).

Pinterest, Inc. (NYSE:PINS) investors should be aware of an increase in hedge fund interest in recent months. Pinterest, Inc. (NYSE:PINS) was in 53 hedge funds' portfolios at the end of June. The all time high for this statistics is 38. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. 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 Melvin Capital Management

Gabriel Plotkin of Melvin Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. With all of this in mind let's take a look at the new hedge fund action encompassing Pinterest, Inc. (NYSE:PINS).

How have hedgies been trading Pinterest, Inc. (NYSE:PINS)?

At second quarter's end, a total of 53 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 39% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards PINS over the last 20 quarters. With hedgies' sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

The largest stake in Pinterest, Inc. (NYSE:PINS) was held by Eminence Capital, which reported holding $127.1 million worth of stock at the end of September. It was followed by Melvin Capital Management with a $97.5 million position. Other investors bullish on the company included Select Equity Group, Citadel Investment Group, and Holocene Advisors. 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, setting aside 8.52 percent of its 13F equity portfolio to PINS.

Now, 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 following funds were also among the new PINS investors: 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 - not necessarily in the same industry as Pinterest, Inc. (NYSE:PINS) but similarly valued. 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). This group of stocks' market values resemble PINS's market value.

[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]

View table here if you experience formatting issues.

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 30% in 2020 through October 23rd but still managed to beat the market by 21 percentage points. Hedge funds were also right about betting on PINS as the stock returned 139.1% since the end of June (through 10/23) 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.

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

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