Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Dicks Sporting Goods Inc (NYSE:DKS).
Is Dicks Sporting Goods Inc (NYSE:DKS) worth your attention right now? Prominent investors are reducing their bets on the stock. The number of long hedge fund positions fell by 2 recently. Our calculations also showed that dks isn’t among the 30 most popular stocks among hedge funds. DKS was in 21 hedge funds’ portfolios at the end of September. There were 23 hedge funds in our database with DKS holdings at the end of the previous quarter.
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 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s take a glance at the recent hedge fund action encompassing Dicks Sporting Goods Inc (NYSE:DKS).
How are hedge funds trading Dicks Sporting Goods Inc (NYSE:DKS)?
At Q3’s end, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards DKS over the last 13 quarters. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
The largest stake in Dicks Sporting Goods Inc (NYSE:DKS) was held by Tensile Capital, which reported holding $52.1 million worth of stock at the end of September. It was followed by Holocene Advisors with a $35.5 million position. Other investors bullish on the company included Millennium Management, Renaissance Technologies, and Bloom Tree Partners.
Since Dicks Sporting Goods Inc (NYSE:DKS) has experienced bearish sentiment from the entirety of the hedge funds we track, it’s safe to say that there exists a select few fund managers who sold off their positions entirely heading into Q3. Intriguingly, Alexander Mitchell’s Scopus Asset Management dumped the largest investment of the 700 funds tracked by Insider Monkey, valued at an estimated $31.7 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund cut about $10.3 million worth. These transactions are interesting, as total hedge fund interest dropped by 2 funds heading into Q3.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Dicks Sporting Goods Inc (NYSE:DKS) but similarly valued. These stocks are Embraer SA (NYSE:ERJ), Manhattan Associates, Inc. (NASDAQ:MANH), Platform Specialty Products Corporation (NYSE:PAH), and MasTec, Inc. (NYSE:MTZ). All of these stocks’ market caps are similar to DKS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ERJ | 11 | 125510 | 2 |
| MANH | 23 | 271268 | 7 |
| PAH | 24 | 1347697 | -3 |
| MTZ | 30 | 652548 | 8 |
| Average | 22 | 599256 | 3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $599 million. That figure was $185 million in DKS’s case. MasTec, Inc. (NYSE:MTZ) is the most popular stock in this table. On the other hand Embraer SA (NYSE:ERJ) is the least popular one with only 11 bullish hedge fund positions. Dicks Sporting Goods Inc (NYSE:DKS) 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 MTZ might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
