Last year we predicted the arrival of the first US recession since 2009 and we told in advance that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Desktop Metal, Inc. (NYSE:DM).
Is DM a good stock to buy? The best stock pickers were turning less bullish. The number of bullish hedge fund positions retreated by 4 in recent months. Desktop Metal, Inc. (NYSE:DM) was in 20 hedge funds’ portfolios at the end of March. The all time high for this statistic is 24. Our calculations also showed that DM isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 24 hedge funds in our database with DM holdings at the end of December.
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 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Dmitry Balyasny of Balyasny Asset Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 homepage. Keeping this in mind we’re going to check out the latest hedge fund action encompassing Desktop Metal, Inc. (NYSE:DM).
Do Hedge Funds Think DM Is A Good Stock To Buy Now?
At first quarter’s end, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards DM over the last 23 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Bill Miller’s Miller Value Partners has the number one position in Desktop Metal, Inc. (NYSE:DM), worth close to $88.3 million, accounting for 2.3% of its total 13F portfolio. Coming in second is Gaurav Kapadia of XN Exponent Advisors, with a $37.7 million position; the fund has 2.1% of its 13F portfolio invested in the stock. Some other peers that are bullish encompass Nancy Zevenbergen’s Zevenbergen Capital Investments, D. E. Shaw’s D E Shaw and Catherine D. Wood’s ARK Investment Management. In terms of the portfolio weights assigned to each position Miller Value Partners allocated the biggest weight to Desktop Metal, Inc. (NYSE:DM), around 2.28% of its 13F portfolio. XN Exponent Advisors is also relatively very bullish on the stock, setting aside 2.14 percent of its 13F equity portfolio to DM.
Seeing as Desktop Metal, Inc. (NYSE:DM) has faced a decline in interest from the smart money, logic holds that there was a specific group of fund managers that elected to cut their entire stakes in the first quarter. At the top of the heap, Alexander Mitchell’s Scopus Asset Management said goodbye to the biggest position of the “upper crust” of funds followed by Insider Monkey, comprising an estimated $16.5 million in stock. Anand Parekh’s fund, Alyeska Investment Group, also dumped its stock, about $15.5 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 4 funds in the first quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Desktop Metal, Inc. (NYSE:DM) but similarly valued. These stocks are Sleep Number Corporation (NASDAQ:SNBR), Urban Outfitters, Inc. (NASDAQ:URBN), Investors Bancorp, Inc. (NASDAQ:ISBC), Beacon Roofing Supply, Inc. (NASDAQ:BECN), Cannae Holdings, Inc. (NYSE:CNNE), BRF SA (NYSE:BRFS), and Cushman & Wakefield plc (NYSE:CWK). All of these stocks’ market caps are similar to DM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SNBR | 21 | 256554 | 5 |
| URBN | 23 | 140764 | -1 |
| ISBC | 12 | 78620 | -12 |
| BECN | 21 | 411376 | -2 |
| CNNE | 36 | 672726 | 2 |
| BRFS | 8 | 47746 | -3 |
| CWK | 19 | 157185 | 4 |
| Average | 20 | 252139 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $252 million. That figure was $216 million in DM’s case. Cannae Holdings, Inc. (NYSE:CNNE) is the most popular stock in this table. On the other hand BRF SA (NYSE:BRFS) is the least popular one with only 8 bullish hedge fund positions. Desktop Metal, Inc. (NYSE:DM) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for DM is 47.4. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and surpassed the market again by 7.7 percentage points. Unfortunately DM wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); DM investors were disappointed as the stock returned -38.6% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.
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Disclosure: None. This article was originally published at Insider Monkey.
