Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients’ money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space. Nevertheless, it is also possible to identify cheap large cap stocks by following the footsteps of best performing hedge funds. In this article we are going to take a look at smart money sentiment towards Domino’s Pizza, Inc. (NYSE:DPZ).
Is Domino’s Pizza, Inc. (NYSE:DPZ) the right investment to pursue these days? Prominent investors are taking an optimistic view. The number of long hedge fund bets advanced by 9 recently. Our calculations also showed that DPZ isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings). DPZ was in 36 hedge funds’ portfolios at the end of the third quarter of 2019. There were 27 hedge funds in our database with DPZ positions at the end of the previous quarter.
Today there are a large number of metrics market participants use to assess their holdings. A couple of the most useful metrics are hedge fund and insider trading interest. We have shown that, historically, those who follow the best picks of the top investment managers can outperform the S&P 500 by a significant amount (see the details here).
Ricky Sandler of Eminence Capital
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s take a look at the fresh hedge fund action encompassing Domino’s Pizza, Inc. (NYSE:DPZ).
How are hedge funds trading Domino’s Pizza, Inc. (NYSE:DPZ)?
Heading into the fourth quarter of 2019, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of 33% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards DPZ over the last 17 quarters. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
Among these funds, Lone Pine Capital held the most valuable stake in Domino’s Pizza, Inc. (NYSE:DPZ), which was worth $532.7 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $418.5 million worth of shares. Fisher Asset Management, Eminence Capital, and Steadfast Capital Management 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 Stormborn Capital Management allocated the biggest weight to Domino’s Pizza, Inc. (NYSE:DPZ), around 10.5% of its 13F portfolio. Crestwood Capital Management is also relatively very bullish on the stock, earmarking 4.7 percent of its 13F equity portfolio to DPZ.
As industrywide interest jumped, key money managers were leading the bulls’ herd. Eminence Capital, managed by Ricky Sandler, created the most outsized position in Domino’s Pizza, Inc. (NYSE:DPZ). Eminence Capital had $141.3 million invested in the company at the end of the quarter. Robert Pitts’s Steadfast Capital Management also initiated a $131.5 million position during the quarter. The other funds with brand new DPZ positions are Robert Pohly’s Samlyn Capital, Eric W. Mandelblatt and Gaurav Kapadia’s Soroban Capital Partners, and Doug Silverman and Alexander Klabin’s Senator Investment Group.
Let’s now take a look at hedge fund activity in other stocks similar to Domino’s Pizza, Inc. (NYSE:DPZ). These stocks are Weibo Corp (NASDAQ:WB), Whirlpool Corporation (NYSE:WHR), Packaging Corporation Of America (NYSE:PKG), and Reinsurance Group of America Inc (NYSE:RGA). All of these stocks’ market caps match DPZ’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WB | 14 | 353314 | -2 |
| WHR | 28 | 978810 | 9 |
| PKG | 16 | 119433 | -5 |
| RGA | 25 | 476554 | -1 |
| Average | 20.75 | 482028 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $482 million. That figure was $1932 million in DPZ’s case. Whirlpool Corporation (NYSE:WHR) is the most popular stock in this table. On the other hand Weibo Corp (NASDAQ:WB) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Domino’s Pizza, Inc. (NYSE:DPZ) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately DPZ wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on DPZ were disappointed as the stock returned 17.4% so far in 2019 (through 12/23) and trailed 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 65 percent of these stocks already outperformed the market in 2019.
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.
