Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren’t very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds’ top 30 stock picks easily bested the broader market, at 6.7% compared to 2.6%, despite there being a few duds in there like Facebook (even their collective wisdom isn’t perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors, which is why in this article we are going to take a look at the recent hedge fund sentiment towards Discovery, Inc. (NASDAQ:DISCA).
Is Discovery, Inc. (NASDAQ:DISCA) a healthy stock for your portfolio? Investors who are in the know are betting on the stock. The number of long hedge fund bets rose by 3 lately, and the company was in 23 hedge funds’ portfolios at the end of the third quarter of 2018. With 23 investors with long positions in Discovery, Inc. (NASDAQ:DISCA), the company wasn’t one of the 30 most popular stocks among hedge funds in Q3 of 2018.
According to most market participants, hedge funds are seen as slow, outdated investment tools of the past. While there are greater than 8000 funds in operation at present, Our researchers choose to focus on the bigwigs of this group, approximately 700 funds. These hedge fund managers direct bulk of all hedge funds’ total capital, and by tracking their first-class stock picks, Insider Monkey has deciphered many investment strategies that have historically beaten Mr. Market. Insider Monkey’s flagship hedge fund strategy defeated the S&P 500 index by 6 percentage points per year since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 26.1% since February 2017 even though the market was up nearly 19% during the same period. We just shared a list of 11 short targets in our latest quarterly update.
“Discovery has an enviable business model. About 50% of revenue is generated from long-term agreements with pay-TV distributors and the company is exposed to secular growth in the international pay-TV industry. Industry leading margins are especially attractive given the low capital intensity of the cable network business. We expect the acquisition of Scripps Networks to provide meaningful cost synergies as well as improved scale. We also believe Discovery could be an attractive acquisition target for a number of larger media companies given the acceleration in industry consolidation. DISCA trades at 9.0x 2019P EBITDA, which compares favorably to recent transactions: Time Warner was purchased at 13x EBITDA; Disney is paying 15.5x EBITDA for FOX’s assets.”
Let’s analyze the latest hedge fund action surrounding Discovery, Inc. (NASDAQ:DISCA).
How have hedgies been trading Discovery, Inc. (NASDAQ:DISCA)?
At Q3’s end, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 15% from the previous quarter. By comparison, 26 hedge funds held shares or bullish call options in DISCA heading into this year. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Citadel Investment Group was the largest shareholder of Discovery, Inc. (NASDAQ:DISCA), with a stake worth $171.3 million reported as of the end of September. Trailing Citadel Investment Group was D E Shaw, which amassed a stake valued at $98.2 million. Millennium Management, GAMCO Investors, and Renaissance Technologies were also very fond of the stock, giving the stock large weights in their portfolios.
Now, some big names were leading the bulls’ herd. Impax Asset Management, managed by Ian Simm, assembled the biggest position in Discovery, Inc. (NASDAQ:DISCA). Impax Asset Management had $13.4 million invested in the company at the end of the quarter. Daniel Arbess’s Perella Weinberg Partners also initiated a $8.2 million position during the quarter. The other funds with brand new DISCA positions are Glenn Russell Dubin’s Highbridge Capital Management, Dmitry Balyasny’s Balyasny Asset Management, and Michael Platt and William Reeves’s BlueCrest Capital Mgmt.
Let’s also examine hedge fund activity in other stocks similar to Discovery, Inc. (NASDAQ:DISCA). We will take a look at DISH Network Corp. (NASDAQ:DISH), Cardinal Health, Inc. (NYSE:CAH), Principal Financial Group Inc (NYSE:PFG), and Fastenal Company (NASDAQ:FAST). This group of stocks’ market values are closest to DISCA’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DISH | 41 | 1968536 | 3 |
| CAH | 27 | 1077693 | -1 |
| PFG | 15 | 152523 | -3 |
| FAST | 23 | 1429182 | -1 |
As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $1.16 billion. That figure was $521 million in DISCA’s case. DISH Network Corp. (NASDAQ:DISH) is the most popular stock in this table. On the other hand Principal Financial Group Inc (NYSE:PFG) is the least popular one with only 15 bullish hedge fund positions. Discovery, Inc. (NASDAQ:DISCA) 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 DISH might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
