We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Dana Incorporated (NYSE:DAN) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Dana Incorporated (NYSE:DAN) shares haven’t seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 27 hedge funds’ portfolios at the end of the fourth quarter of 2019. At the end of this article we will also compare DAN to other stocks including Apergy Corporation (NYSE:APY), HMS Holdings Corp. (NASDAQ:HMSY), and Natera Inc (NASDAQ:NTRA) to get a better sense of its popularity.
According to most market participants, hedge funds are viewed as worthless, old investment tools of the past. While there are over 8000 funds with their doors open at present, Our researchers choose to focus on the leaders of this group, around 850 funds. These money managers handle bulk of the smart money’s total capital, and by observing their unrivaled equity investments, Insider Monkey has uncovered numerous investment strategies that have historically outperformed the broader indices. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Cliff Asness of AQR Capital Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the new hedge fund action surrounding Dana Incorporated (NYSE:DAN).
How are hedge funds trading Dana Incorporated (NYSE:DAN)?
Heading into the first quarter of 2020, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. By comparison, 28 hedge funds held shares or bullish call options in DAN a year ago. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
Among these funds, AQR Capital Management held the most valuable stake in Dana Incorporated (NYSE:DAN), which was worth $63.3 million at the end of the third quarter. On the second spot was GAMCO Investors which amassed $62.5 million worth of shares. Pzena Investment Management, Glendon Capital Management, and Millennium Management 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 Glendon Capital Management allocated the biggest weight to Dana Incorporated (NYSE:DAN), around 4.87% of its 13F portfolio. Anchor Bolt Capital is also relatively very bullish on the stock, dishing out 3.08 percent of its 13F equity portfolio to DAN.
Since Dana Incorporated (NYSE:DAN) has witnessed declining sentiment from the smart money, it’s easy to see that there was a specific group of hedge funds who sold off their positions entirely last quarter. It’s worth mentioning that D. E. Shaw’s D E Shaw dumped the largest position of all the hedgies watched by Insider Monkey, valued at about $3.7 million in stock. Steve Cohen’s fund, Point72 Asset Management, also dropped its stock, about $2.2 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out hedge fund activity in other stocks similar to Dana Incorporated (NYSE:DAN). We will take a look at Apergy Corporation (NYSE:APY), HMS Holdings Corp. (NASDAQ:HMSY), Natera Inc (NASDAQ:NTRA), and Stitch Fix, Inc. (NASDAQ:SFIX). All of these stocks’ market caps match DAN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| APY | 17 | 119261 | 0 |
| HMSY | 25 | 137946 | 1 |
| NTRA | 33 | 325243 | 9 |
| SFIX | 28 | 299710 | 5 |
| Average | 25.75 | 220540 | 3.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $221 million. That figure was $278 million in DAN’s case. Natera Inc (NASDAQ:NTRA) is the most popular stock in this table. On the other hand Apergy Corporation (NYSE:APY) is the least popular one with only 17 bullish hedge fund positions. Dana Incorporated (NYSE:DAN) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately DAN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on DAN were disappointed as the stock returned -57.1% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
