We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 835 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of December 31st, 2019. 0
Hedge fund interest in Discovery Communications Inc. (NASDAQ:DISCK) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare DISCK to other stocks including Grifols SA (NASDAQ:GRFS), NortonLifeLock Inc. (NASDAQ:NLOK), and Roku, Inc. (NASDAQ:ROKU) to get a better sense of its popularity.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
John Paulson of Paulson & Co
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s review the key hedge fund action surrounding Discovery Communications Inc. (NASDAQ:DISCK).
How have hedgies been trading Discovery Communications Inc. (NASDAQ:DISCK)?
Heading into the first quarter of 2020, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in DISCK over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Paulson & Co, managed by John Paulson, holds the biggest position in Discovery Communications Inc. (NASDAQ:DISCK). Paulson & Co has a $333 million position in the stock, comprising 7.2% of its 13F portfolio. On Paulson & Co’s heels is Hudson Bay Capital Management, led by Sander Gerber, holding a $173.4 million position; the fund has 3.9% of its 13F portfolio invested in the stock. Some other members of the smart money that are bullish include Michael Hintze’s CQS Cayman LP, Ken Griffin’s Citadel Investment Group and Phill Gross and Robert Atchinson’s Adage Capital Management. In terms of the portfolio weights assigned to each position CQS Cayman LP allocated the biggest weight to Discovery Communications Inc. (NASDAQ:DISCK), around 7.67% of its 13F portfolio. Paulson & Co is also relatively very bullish on the stock, setting aside 7.19 percent of its 13F equity portfolio to DISCK.
Because Discovery Communications Inc. (NASDAQ:DISCK) has witnessed declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there exists a select few fund managers that slashed their full holdings heading into Q4. Interestingly, Shane Finemore’s Manikay Partners cut the largest stake of the “upper crust” of funds followed by Insider Monkey, totaling close to $7.4 million in stock, and Jeffrey Talpins’s Element Capital Management was right behind this move, as the fund sold off about $1.7 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks similar to Discovery Communications Inc. (NASDAQ:DISCK). We will take a look at Grifols SA (NASDAQ:GRFS), NortonLifeLock Inc. (NASDAQ:NLOK), Roku, Inc. (NASDAQ:ROKU), and Avangrid, Inc. (NYSE:AGR). This group of stocks’ market values are closest to DISCK’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GRFS | 21 | 767478 | -1 |
| NLOK | 46 | 1623946 | 5 |
| ROKU | 34 | 231771 | -5 |
| AGR | 19 | 370291 | 3 |
| Average | 30 | 748372 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 30 hedge funds with bullish positions and the average amount invested in these stocks was $748 million. That figure was $949 million in DISCK’s case. NortonLifeLock Inc. (NASDAQ:NLOK) is the most popular stock in this table. On the other hand Avangrid, Inc. (NYSE:AGR) is the least popular one with only 19 bullish hedge fund positions. Discovery Communications Inc. (NASDAQ:DISCK) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately DISCK wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on DISCK were disappointed as the stock returned -38% during the same time period 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.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
