How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Drive Shack Inc. (NYSE:DS).
Is Drive Shack Inc. (NYSE:DS) a buy, sell, or hold? Prominent investors are in a bearish mood. The number of bullish hedge fund bets dropped by 2 recently. Our calculations also showed that DS isn’t among the 30 most popular stocks among hedge funds (see the video below). DS was in 8 hedge funds’ portfolios at the end of the second quarter of 2019. There were 10 hedge funds in our database with DS positions at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a gander at the key hedge fund action regarding Drive Shack Inc. (NYSE:DS).
Hedge fund activity in Drive Shack Inc. (NYSE:DS)
At the end of the second quarter, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from the previous quarter. The graph below displays the number of hedge funds with bullish position in DS over the last 16 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Sheffield Asset Management held the most valuable stake in Drive Shack Inc. (NYSE:DS), which was worth $5.5 million at the end of the second quarter. On the second spot was D E Shaw which amassed $0.3 million worth of shares. Moreover, Winton Capital Management, AQR Capital Management, and Millennium Management were also bullish on Drive Shack Inc. (NYSE:DS), allocating a large percentage of their portfolios to this stock.
Because Drive Shack Inc. (NYSE:DS) has experienced declining sentiment from hedge fund managers, it’s easy to see that there is a sect of hedgies that decided to sell off their positions entirely last quarter. It’s worth mentioning that Renaissance Technologies said goodbye to the largest investment of the 750 funds watched by Insider Monkey, comprising about $0.8 million in stock. Remy Trafelet’s fund, Trafelet Capital, also said goodbye to its stock, about $0.5 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 2 funds last quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Drive Shack Inc. (NYSE:DS) but similarly valued. These stocks are USD Partners LP (NYSE:USDP), Denison Mines Corp (NYSE:DNN), Spirit of Texas Bancshares, Inc. (NASDAQ:STXB), and Genie Energy Ltd (NYSE:GNE). This group of stocks’ market valuations are similar to DS’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| USDP | 3 | 4457 | -1 |
| DNN | 4 | 1703 | 0 |
| STXB | 1 | 580 | 0 |
| GNE | 10 | 13157 | 1 |
| Average | 4.5 | 4974 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.5 hedge funds with bullish positions and the average amount invested in these stocks was $5 million. That figure was $6 million in DS’s case. Genie Energy Ltd (NYSE:GNE) is the most popular stock in this table. On the other hand Spirit of Texas Bancshares, Inc. (NASDAQ:STXB) is the least popular one with only 1 bullish hedge fund positions. Drive Shack Inc. (NYSE:DS) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately DS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on DS were disappointed as the stock returned -8.1% during the third quarter 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
