Legendary investors such as Leon Cooperman and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don’t publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That’s why we analyze the activity of those successful funds in these small-cap stocks. In the following paragraphs, we analyze DigitalGlobe Inc (NYSE:DGI) from the perspective of those successful funds.
Is DigitalGlobe Inc (NYSE:DGI) a sound investment right now? Money managers are actually taking an optimistic view. The number of long hedge fund positions that are disclosed in regulatory 13F filings advanced by 1 in recent months. DGI was in 16 hedge funds’ portfolios at the end of the third quarter of 2016. There were 15 hedge funds in our database with DGI positions on June 30th. At the end of this article we will also compare DGI to other stocks including Trex Company, Inc. (NYSE:TREX), Viavi Solutions Inc (NASDAQ:VIAV), and Nelnet, Inc. (NYSE:NNI) to get a better sense of its popularity.
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We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.
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With all of this in mind, we’re going to analyze the key action encompassing DigitalGlobe Inc (NYSE:DGI).
What have hedge funds been doing with DigitalGlobe Inc (NYSE:DGI)?
At the end of the third quarter, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in DGI over the last 5 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Daruma Asset Management, led by Mariko Gordon, holds the biggest position in DigitalGlobe Inc (NYSE:DGI). Daruma Asset Management has a $65.7 million position in the stock, comprising 4% of its 13F portfolio. The second most bullish fund D E Shaw, one of the biggest hedge funds in the world, holding a $36.9 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that are bullish encompass Renaissance Technologies, also one of the largest hedge funds in the world, Principal Global Investors’s Columbus Circle Investors and Stuart J. Zimmer’s Zimmer Partners. We should note that Zimmer Partners is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
As aggregate interest increased, key hedge funds were leading the bulls’ herd. Zimmer Partners assembled the biggest position in DigitalGlobe Inc (NYSE:DGI). Zimmer Partners had $13.8 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $5.5 million position during the quarter. The only other fund with a brand new DGI position is Andrew Weiss’s Weiss Asset Management.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as DigitalGlobe Inc (NYSE:DGI) but similarly valued. These stocks are Trex Company, Inc. (NYSE:TREX), Viavi Solutions Inc (NASDAQ:VIAV), Nelnet, Inc. (NYSE:NNI), and Herman Miller, Inc. (NASDAQ:MLHR). This group of stocks’ market caps are closest to DGI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TREX | 10 | 22569 | 3 |
| VIAV | 23 | 215214 | 2 |
| NNI | 9 | 51977 | -6 |
| MLHR | 16 | 104315 | -4 |
As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $99 million. That figure was $187 million in DGI’s case. Viavi Solutions Inc (NASDAQ:VIAV) is the most popular stock in this table. On the other hand Nelnet, Inc. (NYSE:NNI) is the least popular one with only 9 bullish hedge fund positions. DigitalGlobe Inc (NYSE:DGI) 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. In this regard VIAV might be a better candidate to consider taking a long position in.
