Duluth Holdings Inc (DLTH): Are Hedge Funds Right About This Stock?

At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Third Point because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.

Duluth Holdings Inc (NASDAQ:DLTH) investors should be aware of an increase in support from the world’s most successful money managers of late. DLTH was in 8 hedge funds’ portfolios at the end of September. There were 6 hedge funds in our database with DLTH positions at the end of the previous quarter. At the end of this article we will also compare DLTH to other stocks including Air Transport Services Group Inc. (NASDAQ:ATSG), Universal Health Realty Income Trust (NYSE:UHT), and Caretrus REIT Inc (NASDAQ:CTRE) to get a better sense of its popularity.

We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

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Keeping this in mind, let’s take a look at the key action regarding Duluth Holdings Inc (NASDAQ:DLTH).

What does the smart money think about Duluth Holdings Inc (NASDAQ:DLTH)?

Heading into the fourth quarter of 2016, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a jump of 33% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in DLTH over the last 5 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, 12 West Capital Management, led by Joel Ramin, holds the biggest position in Duluth Holdings Inc (NASDAQ:DLTH). According to regulatory filings, the fund has a $13.7 million position in the stock, comprising 2% of its 13F portfolio. The second most bullish fund manager is Akre Capital Management, led by Charles Akre, which holds a $9.3 million position; 0.2% of its 13F portfolio is allocated to the stock. Remaining professional money managers with similar optimism consist of Steve Cohen’s Point72 Asset Management, Richard Driehaus’s Driehaus Capital and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

As aggregate interest increased, some big names were breaking ground themselves. Point72 Asset Management, led by Steve Cohen, initiated the biggest position in Duluth Holdings Inc (NASDAQ:DLTH). According to its latest 13F filing, the fund had $4.5 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $2.9 million position during the quarter. The other funds with brand new DLTH positions are Paul Marshall and Ian Wace’s Marshall Wace LLP and Paul Tudor Jones’s Tudor Investment Corp.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Duluth Holdings Inc (NASDAQ:DLTH) but similarly valued. These stocks are Air Transport Services Group Inc. (NASDAQ:ATSG), Universal Health Realty Income Trust (NYSE:UHT), Caretrus REIT Inc (NASDAQ:CTRE), and Amphastar Pharmaceuticals Inc (NASDAQ:AMPH). This group of stocks’ market valuations are closest to DLTH’s market valuation.

As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $85 million. That figure was $36 million in DLTH’s case. Air Transport Services Group Inc. (NASDAQ:ATSG) is the most popular stock in this table. On the other hand Universal Health Realty Income Trust (NYSE:UHT) is the least popular one with only 5 bullish hedge fund positions. Duluth Holdings Inc (NASDAQ:DLTH) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard ATSG might be a better candidate to consider taking a long position in.

Disclosure: none.