Hedge Funds Are Selling Dolby Laboratories, Inc. (DLB)

In this article we will check out the progression of hedge fund sentiment towards Dolby Laboratories, Inc. (NYSE:DLB) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Dolby Laboratories, Inc. (NYSE:DLB) has seen a decrease in hedge fund sentiment of late. Dolby Laboratories, Inc. (NYSE:DLB) was in 31 hedge funds’ portfolios at the end of June. The all time high for this statistic is 35. Our calculations also showed that DLB isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 79 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.

Anna Nikolayevsky of Axel Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind we’re going to take a look at the latest hedge fund action encompassing Dolby Laboratories, Inc. (NYSE:DLB).

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

At the end of the second quarter, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the previous quarter. On the other hand, there were a total of 28 hedge funds with a bullish position in DLB a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Dolby Laboratories, Inc. (NYSE:DLB) was held by SoMa Equity Partners, which reported holding $226.1 million worth of stock at the end of June. It was followed by Southpoint Capital Advisors with a $137.6 million position. Other investors bullish on the company included Polar Capital, Renaissance Technologies, and Sunriver Management. In terms of the portfolio weights assigned to each position Sunriver Management allocated the biggest weight to Dolby Laboratories, Inc. (NYSE:DLB), around 6.01% of its 13F portfolio. Ararat Capital is also relatively very bullish on the stock, earmarking 5.4 percent of its 13F equity portfolio to DLB.

Judging by the fact that Dolby Laboratories, Inc. (NYSE:DLB) has experienced falling interest from the entirety of the hedge funds we track, it’s safe to say that there were a few hedge funds that elected to cut their entire stakes last quarter. It’s worth mentioning that Steve Cohen’s Point72 Asset Management said goodbye to the largest investment of all the hedgies watched by Insider Monkey, totaling close to $8 million in stock. Michael Gelband’s fund, ExodusPoint Capital, also said goodbye to its stock, about $1 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 3 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to Dolby Laboratories, Inc. (NYSE:DLB). We will take a look at Comerica Incorporated (NYSE:CMA), Beyond Meat, Inc. (NASDAQ:BYND), DXC Technology Company (NYSE:DXC), Formula One Group (NASDAQ:FWONA), Amdocs Limited (NASDAQ:DOX), NRG Energy Inc (NYSE:NRG), and MKS Instruments, Inc. (NASDAQ:MKSI). This group of stocks’ market caps resemble DLB’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.1 hedge funds with bullish positions and the average amount invested in these stocks was $714 million. That figure was $748 million in DLB’s case. Comerica Incorporated (NYSE:CMA) is the most popular stock in this table. On the other hand Beyond Meat, Inc. (NASDAQ:BYND) is the least popular one with only 17 bullish hedge fund positions. Dolby Laboratories, Inc. (NYSE:DLB) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DLB is 72.3. 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. 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 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 24.9% in 2021 through October 15th and beat the market again by 4.5 percentage points. Unfortunately DLB wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on DLB were disappointed as the stock returned -8.5% since the end of June (through 10/15) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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