Is Dolby Laboratories, Inc. (NYSE:DLB) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Dolby Laboratories, Inc. (NYSE:DLB) was in 27 hedge funds’ portfolios at the end of the second quarter of 2019. DLB has experienced a decrease in enthusiasm from smart money in recent months. There were 29 hedge funds in our database with DLB positions at the end of the previous quarter. Our calculations also showed that DLB isn’t among the 30 most popular stocks among hedge funds (view the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, 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 new hedge fund action encompassing Dolby Laboratories, Inc. (NYSE:DLB).
What does smart money think about Dolby Laboratories, Inc. (NYSE:DLB)?
Heading into the third quarter of 2019, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the first quarter of 2019. On the other hand, there were a total of 21 hedge funds with a bullish position in DLB a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Michael Price of MFP Investors
The largest stake in Dolby Laboratories, Inc. (NYSE:DLB) was held by Renaissance Technologies, which reported holding $169.1 million worth of stock at the end of March. It was followed by Polar Capital with a $90.7 million position. Other investors bullish on the company included MFP Investors, Nantahala Capital Management, and Alyeska Investment Group.
Seeing as Dolby Laboratories, Inc. (NYSE:DLB) has witnessed a decline in interest from the aggregate hedge fund industry, it’s safe to say that there is a sect of fund managers who were dropping their full holdings in the second quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dumped the largest investment of the “upper crust” of funds monitored by Insider Monkey, comprising an estimated $4.8 million in stock. Andrew Feldstein and Stephen Siderow’s fund, Blue Mountain Capital, also dumped its stock, about $3.3 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 2 funds in the second quarter.
Let’s now review hedge fund activity in other stocks similar to Dolby Laboratories, Inc. (NYSE:DLB). These stocks are Israel Chemicals Ltd. (NYSE:ICL), Elbit Systems Ltd. (NASDAQ:ESLT), Sonoco Products Company (NYSE:SON), and Logitech International SA (NASDAQ:LOGI). This group of stocks’ market values are closest to DLB’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ICL | 6 | 37150 | 2 |
| ESLT | 5 | 19217 | 3 |
| SON | 19 | 122266 | 2 |
| LOGI | 16 | 207640 | 1 |
| Average | 11.5 | 96568 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $97 million. That figure was $502 million in DLB’s case. Sonoco Products Company (NYSE:SON) is the most popular stock in this table. On the other hand Elbit Systems Ltd. (NASDAQ:ESLT) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Dolby Laboratories, Inc. (NYSE:DLB) is more popular among hedge funds. 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 DLB wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on DLB were disappointed as the stock returned 0.4% 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 in Q3.
Disclosure: None. This article was originally published at Insider Monkey.
