Hedge Funds Have Never Been This Bullish On Discovery Inc. (DISCA)

In this article we are going to use hedge fund sentiment as a tool and determine whether Discovery Inc. (NASDAQ:DISCA) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is Discovery Inc. (NASDAQ:DISCA) a bargain? The smart money was in an optimistic mood. The number of bullish hedge fund positions improved by 20 lately. Discovery Inc. (NASDAQ:DISCA) was in 48 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic was 38. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that DISCA isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

If you’d ask most shareholders, hedge funds are seen as underperforming, outdated financial tools of the past. While there are over 8000 funds trading at the moment, Our researchers choose to focus on the upper echelon of this club, around 850 funds. These money managers command the lion’s share of the smart money’s total capital, and by following their first-class investments, Insider Monkey has deciphered many investment strategies that have historically defeated Mr. Market. Insider Monkey’s flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Also, our monthly newsletter’s portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .

Bill Miller of Miller Value Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation, which is why we are checking out this inflation play. We go through lists like 10 best gold stocks to buy to identify promising stocks. 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. Now let’s take a peek at the recent hedge fund action surrounding Discovery Inc. (NASDAQ:DISCA).

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

At Q1’s end, a total of 48 of the hedge funds tracked by Insider Monkey were long this stock, a change of 71% from the previous quarter. On the other hand, there were a total of 32 hedge funds with a bullish position in DISCA a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stake in Discovery Inc. (NASDAQ:DISCA), which was worth $167.6 million at the end of the fourth quarter. On the second spot was Millennium Management which amassed $71.3 million worth of shares. Citadel Investment Group, GAMCO Investors, and Miller Value Partners 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 Quaker Capital Investments allocated the biggest weight to Discovery Inc. (NASDAQ:DISCA), around 13% of its 13F portfolio. Hunting Hill Global Capital is also relatively very bullish on the stock, dishing out 4.78 percent of its 13F equity portfolio to DISCA.

As one would reasonably expect, key hedge funds were breaking ground themselves. Renaissance Technologies, assembled the biggest position in Discovery Inc. (NASDAQ:DISCA). Renaissance Technologies had $167.6 million invested in the company at the end of the quarter. David Tepper’s Appaloosa Management LP also made a $20.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Adam Guren’s Hunting Hill Global Capital, Frank Fu’s CaaS Capital, and Dmitry Balyasny’s Balyasny Asset Management.

Let’s now take a look at hedge fund activity in other stocks similar to Discovery Inc. (NASDAQ:DISCA). These stocks are Trimble Inc. (NASDAQ:TRMB), M&T Bank Corporation (NYSE:MTB), Teleflex Incorporated (NYSE:TFX), KB Financial Group, Inc. (NYSE:KB), IAC/InterActiveCorp (NASDAQ:IAC), KeyCorp (NYSE:KEY), and Hologic, Inc. (NASDAQ:HOLX). This group of stocks’ market valuations are closest to DISCA’s market valuation.

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As you can see these stocks had an average of 33.9 hedge funds with bullish positions and the average amount invested in these stocks was $855 million. That figure was $591 million in DISCA’s case. IAC/InterActiveCorp (NASDAQ:IAC) is the most popular stock in this table. On the other hand KB Financial Group, Inc. (NYSE:KB) is the least popular one with only 9 bullish hedge fund positions. Discovery Inc. (NASDAQ:DISCA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DISCA is 76.1. 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 17.4% in 2021 through June 18th and beat the market again by 6.1 percentage points. Unfortunately DISCA wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on DISCA were disappointed as the stock returned -33.1% since the end of March (through 6/18) 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.