Hedge Funds Are Coming Back To Domino’s Pizza, Inc. (DPZ)

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Domino’s Pizza, Inc. (NYSE:DPZ).

Domino’s Pizza, Inc. (NYSE:DPZ) was in 36 hedge funds’ portfolios at the end of September. The all time high for this statistic is 47. DPZ has experienced an increase in hedge fund sentiment lately. There were 31 hedge funds in our database with DPZ positions at the end of the second quarter. Our calculations also showed that DPZ isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind we’re going to take a look at the fresh hedge fund action regarding Domino’s Pizza, Inc. (NYSE:DPZ).

Gabriel Plotkin of Melvin Capital Management

Do Hedge Funds Think DPZ Is A Good Stock To Buy Now?

Heading into the fourth quarter of 2021, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 16% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards DPZ over the last 25 quarters. With hedge funds’ sentiment swirling, there exists a few key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Among these funds, Pershing Square held the most valuable stake in Domino’s Pizza, Inc. (NYSE:DPZ), which was worth $997.9 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $633.2 million worth of shares. Melvin Capital Management, Fisher Asset Management, and Citadel Investment Group 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 Pershing Square allocated the biggest weight to Domino’s Pizza, Inc. (NYSE:DPZ), around 10.54% of its 13F portfolio. Chilton Investment Company is also relatively very bullish on the stock, setting aside 1.99 percent of its 13F equity portfolio to DPZ.

With a general bullishness amongst the heavyweights, some big names were leading the bulls’ herd. Sandler Capital Management, managed by Andrew Sandler, created the most valuable position in Domino’s Pizza, Inc. (NYSE:DPZ). Sandler Capital Management had $6.1 million invested in the company at the end of the quarter. Peter Muller’s PDT Partners also made a $4.3 million investment in the stock during the quarter. The following funds were also among the new DPZ investors: Paul Tudor Jones’s Tudor Investment Corp, Dan Rasmussen’s Verdad Advisers, and Greg Poole’s Echo Street Capital Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Domino’s Pizza, Inc. (NYSE:DPZ) but similarly valued. These stocks are J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT), Pembina Pipeline Corp (NYSE:PBA), Western Digital Corporation (NASDAQ:WDC), Pool Corporation (NASDAQ:POOL), Shinhan Financial Group Co., Ltd. (NYSE:SHG), Rollins, Inc. (NYSE:ROL), and Genuine Parts Company (NYSE:GPC). All of these stocks’ market caps match DPZ’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $523 million. That figure was $2542 million in DPZ’s case. Western Digital Corporation (NASDAQ:WDC) is the most popular stock in this table. On the other hand Shinhan Financial Group Co., Ltd. (NYSE:SHG) is the least popular one with only 6 bullish hedge fund positions. Domino’s Pizza, Inc. (NYSE:DPZ) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DPZ is 75.8. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.6% in 2021 through November 30th and still beat the market by 5.6 percentage points. Hedge funds were also right about betting on DPZ as the stock returned 9.9% since the end of Q3 (through 11/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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