Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published this article and predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. At Insider Monkey, we pore over the filings of nearly 835 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not DXC Technology Company (NYSE:DXC) makes for a good investment right now.
Is DXC Technology Company (NYSE:DXC) the right pick for your portfolio? The smart money is in an optimistic mood. The number of long hedge fund bets moved up by 6 in recent months. Our calculations also showed that DXC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). DXC was in 47 hedge funds’ portfolios at the end of December. There were 41 hedge funds in our database with DXC holdings at the end of the previous quarter.
Video: Click the image to 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 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 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.
Larry Robbins of Glenview Capital
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Now we’re going to go over the new hedge fund action surrounding DXC Technology Company (NYSE:DXC).
Hedge fund activity in DXC Technology Company (NYSE:DXC)
At the end of the fourth quarter, a total of 47 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards DXC over the last 18 quarters. With the smart money’s sentiment swirling, there exists a few key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
Among these funds, Glenview Capital held the most valuable stake in DXC Technology Company (NYSE:DXC), which was worth $413 million at the end of the third quarter. On the second spot was Maverick Capital which amassed $338 million worth of shares. Suvretta Capital Management, Senator Investment Group, and D E Shaw 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 Atlantic Investment Management allocated the biggest weight to DXC Technology Company (NYSE:DXC), around 16.28% of its 13F portfolio. Clearline Capital is also relatively very bullish on the stock, earmarking 10.51 percent of its 13F equity portfolio to DXC.
With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Suvretta Capital Management, managed by Aaron Cowen, established the most outsized position in DXC Technology Company (NYSE:DXC). Suvretta Capital Management had $76.4 million invested in the company at the end of the quarter. Doug Silverman and Alexander Klabin’s Senator Investment Group also made a $75.2 million investment in the stock during the quarter. The following funds were also among the new DXC investors: James Parsons’s Junto Capital Management, Robert Boucai’s Newbrook Capital Advisors, and David Einhorn’s Greenlight Capital.
Let’s now take a look at hedge fund activity in other stocks similar to DXC Technology Company (NYSE:DXC). These stocks are Sarepta Therapeutics Inc (NASDAQ:SRPT), DaVita Inc (NYSE:DVA), TechnipFMC plc (NYSE:FTI), and Cognex Corporation (NASDAQ:CGNX). This group of stocks’ market values are similar to DXC’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SRPT | 42 | 1108005 | 6 |
| DVA | 38 | 3962351 | 1 |
| FTI | 34 | 862501 | -2 |
| CGNX | 24 | 211987 | 4 |
| Average | 34.5 | 1536211 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.5 hedge funds with bullish positions and the average amount invested in these stocks was $1536 million. That figure was $1481 million in DXC’s case. Sarepta Therapeutics Inc (NASDAQ:SRPT) is the most popular stock in this table. On the other hand Cognex Corporation (NASDAQ:CGNX) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks DXC Technology Company (NYSE:DXC) 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 12.9% in 2020 through March 9th and still beat the market by 1.9 percentage points. Unfortunately DXC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on DXC were disappointed as the stock returned -58.4% during the first two months of 2020 (through March 9th) 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 most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
