We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Diamond Offshore Drilling Inc (NYSE:DO).
Diamond Offshore Drilling Inc (NYSE:DO) was in 14 hedge funds’ portfolios at the end of the third quarter of 2019. DO investors should be aware of an increase in activity from the world’s largest hedge funds recently. There were 13 hedge funds in our database with DO positions at the end of the previous quarter. Our calculations also showed that DO isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Ken Fisher of Fisher Asset Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a peek at the recent hedge fund action encompassing Diamond Offshore Drilling Inc (NYSE:DO).
What does smart money think about Diamond Offshore Drilling Inc (NYSE:DO)?
At the end of the third quarter, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards DO over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Orbis Investment Management held the most valuable stake in Diamond Offshore Drilling Inc (NYSE:DO), which was worth $14.6 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $10.7 million worth of shares. Citadel Investment Group, Balyasny Asset Management, and Sculptor Capital 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 Orbis Investment Management allocated the biggest weight to Diamond Offshore Drilling Inc (NYSE:DO), around 0.11% of its 13F portfolio. Ellington is also relatively very bullish on the stock, designating 0.1 percent of its 13F equity portfolio to DO.
Now, specific money managers have jumped into Diamond Offshore Drilling Inc (NYSE:DO) headfirst. ExodusPoint Capital, managed by Michael Gelband, established the biggest position in Diamond Offshore Drilling Inc (NYSE:DO). ExodusPoint Capital had $1.2 million invested in the company at the end of the quarter. David Costen Haley’s HBK Investments also initiated a $0.7 million position during the quarter. The following funds were also among the new DO investors: Mike Vranos’s Ellington, Steve Cohen’s Point72 Asset Management, and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Diamond Offshore Drilling Inc (NYSE:DO) but similarly valued. We will take a look at Cardlytics, Inc. (NASDAQ:CDLX), NanoString Technologies Inc (NASDAQ:NSTG), Delek Logistics Partners LP (NYSE:DKL), and Realogy Holdings Corp (NYSE:RLGY). This group of stocks’ market caps resemble DO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CDLX | 18 | 154224 | 8 |
| NSTG | 18 | 146085 | -2 |
| DKL | 1 | 2915 | 0 |
| RLGY | 23 | 302599 | -1 |
| Average | 15 | 151456 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $151 million. That figure was $44 million in DO’s case. Realogy Holdings Corp (NYSE:RLGY) is the most popular stock in this table. On the other hand Delek Logistics Partners LP (NYSE:DKL) is the least popular one with only 1 bullish hedge fund positions. Diamond Offshore Drilling Inc (NYSE:DO) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately DO wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); DO investors were disappointed as the stock returned 1.6% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
