We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Dropbox, Inc. (NASDAQ:DBX).
Is DBX stock a buy or sell? Hedge fund interest in Dropbox, Inc. (NASDAQ:DBX) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that DBX isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). At the end of this article we will also compare DBX to other stocks including Interpublic Group of Companies Inc (NYSE:IPG), NRG Energy Inc (NYSE:NRG), and Bunge Limited (NYSE:BG) to get a better sense of its popularity.
Gil Simon of SoMa Equity Partners
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 10 best battery stocks to buy to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind let’s take a peek at the new hedge fund action surrounding Dropbox, Inc. (NASDAQ:DBX).
Do Hedge Funds Think DBX Is A Good Stock To Buy Now?
Heading into the first quarter of 2021, a total of 43 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 46 hedge funds held shares or bullish call options in DBX a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Dropbox, Inc. (NASDAQ:DBX), which was worth $378.6 million at the end of the fourth quarter. On the second spot was SoMa Equity Partners which amassed $144.2 million worth of shares. Valiant Capital, Millennium Management, and Greenhouse Funds 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 Indaba Capital Management allocated the biggest weight to Dropbox, Inc. (NASDAQ:DBX), around 4.9% of its 13F portfolio. Greenhouse Funds is also relatively very bullish on the stock, dishing out 4.16 percent of its 13F equity portfolio to DBX.
Judging by the fact that Dropbox, Inc. (NASDAQ:DBX) has experienced falling interest from hedge fund managers, we can see that there is a sect of hedge funds who sold off their full holdings heading into Q1. At the top of the heap, Bruce Emery’s Greenvale Capital said goodbye to the largest stake of the 750 funds followed by Insider Monkey, comprising close to $24.1 million in stock, and Malcolm Levine’s Dendur Capital was right behind this move, as the fund dumped about $19.4 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks similar to Dropbox, Inc. (NASDAQ:DBX). We will take a look at Interpublic Group of Companies Inc (NYSE:IPG), NRG Energy Inc (NYSE:NRG), Bunge Limited (NYSE:BG), Ultragenyx Pharmaceutical Inc (NASDAQ:RARE), RH (NYSE:RH), Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF), and Shaw Communications Inc (NYSE:SJR). This group of stocks’ market caps match DBX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IPG | 38 | 581603 | 7 |
| NRG | 31 | 1465420 | -1 |
| BG | 51 | 936635 | 10 |
| RARE | 26 | 609331 | 6 |
| RH | 42 | 1925993 | 2 |
| KOF | 6 | 384456 | 0 |
| SJR | 19 | 143455 | 6 |
| Average | 30.4 | 863842 | 4.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.4 hedge funds with bullish positions and the average amount invested in these stocks was $864 million. That figure was $963 million in DBX’s case. Bunge Limited (NYSE:BG) is the most popular stock in this table. On the other hand Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF) is the least popular one with only 6 bullish hedge fund positions. Dropbox, Inc. (NASDAQ:DBX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DBX is 71.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 5.3% in 2021 through March 19th and still beat the market by 0.8 percentage points. Hedge funds were also right about betting on DBX as the stock returned 21% since the end of Q4 (through 3/19) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
