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 (10 coronavirus predictions).
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 Dolby Laboratories, Inc. (NYSE:DLB) 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.
Dolby Laboratories, Inc. (NYSE:DLB) investors should pay attention to an increase in enthusiasm from smart money lately. Our calculations also showed that DLB isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 41 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.
Michael Price of MFP Investors
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. With all of this in mind we’re going to take a peek at the key hedge fund action encompassing Dolby Laboratories, Inc. (NYSE:DLB).
What does smart money think about Dolby Laboratories, Inc. (NYSE:DLB)?
At the end of the fourth quarter, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from the previous quarter. On the other hand, there were a total of 23 hedge funds with a bullish position in DLB a year ago. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Renaissance Technologies, holds the most valuable position in Dolby Laboratories, Inc. (NYSE:DLB). Renaissance Technologies has a $145.5 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is Polar Capital, managed by Brian Ashford-Russell and Tim Woolley, which holds a $80.7 million position; 0.7% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors that hold long positions contain Michael Price’s MFP Investors, Wilmot B. Harkey and Daniel Mack’s Nantahala Capital Management and Ed Bosek’s BeaconLight Capital. In terms of the portfolio weights assigned to each position BeaconLight Capital allocated the biggest weight to Dolby Laboratories, Inc. (NYSE:DLB), around 7.16% of its 13F portfolio. MFP Investors is also relatively very bullish on the stock, dishing out 5.75 percent of its 13F equity portfolio to DLB.
As one would reasonably expect, some big names were leading the bulls’ herd. Gotham Asset Management, managed by Joel Greenblatt, assembled the most outsized position in Dolby Laboratories, Inc. (NYSE:DLB). Gotham Asset Management had $1.2 million invested in the company at the end of the quarter. Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors also made a $1 million investment in the stock during the quarter. The other funds with brand new DLB positions are Philippe Laffont’s Coatue Management, Mike Vranos’s Ellington, and Matthew L Pinz’s Pinz Capital.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Dolby Laboratories, Inc. (NYSE:DLB) but similarly valued. These stocks are Watsco Inc (NYSE:WSO), argenx SE (NASDAQ:ARGX), Elbit Systems Ltd. (NASDAQ:ESLT), and Encompass Health Corporation (NYSE:EHC). This group of stocks’ market caps are similar to DLB’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WSO | 23 | 191625 | 1 |
| ARGX | 26 | 788285 | 0 |
| ESLT | 3 | 12089 | 0 |
| EHC | 29 | 360336 | 4 |
| Average | 20.25 | 338084 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $338 million. That figure was $511 million in DLB’s case. Encompass Health Corporation (NYSE:EHC) is the most popular stock in this table. On the other hand Elbit Systems Ltd. (NASDAQ:ESLT) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Dolby Laboratories, Inc. (NYSE:DLB) is more popular among hedge funds. 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 22.3% in 2020 through March 16th but still managed to beat the market by 3.2 percentage points. Hedge funds were also right about betting on DLB, though not to the same extent, as the stock returned -24.8% during the first quarter (through March 16th) and outperformed the market as well.
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.
