Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s analyze whether Dicks Sporting Goods Inc (NYSE:DKS) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
Hedge fund interest in Dicks Sporting Goods Inc (NYSE:DKS) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Axon Enterprise, Inc. (NASDAQ:AAXN), LHC Group, Inc. (NASDAQ:LHCG), and AutoNation, Inc. (NYSE:AN) to gather more data points. Our calculations also showed that DKS isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
In the financial world there are many gauges shareholders use to evaluate their stock investments. Two of the most useful gauges are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the best picks of the elite money managers can beat the S&P 500 by a superb margin (see the details here).
David E. Shaw of D.E. Shaw
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s analyze the new hedge fund action regarding Dicks Sporting Goods Inc (NYSE:DKS).
What have hedge funds been doing with Dicks Sporting Goods Inc (NYSE:DKS)?
At Q4’s end, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. By comparison, 22 hedge funds held shares or bullish call options in DKS a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, D E Shaw held the most valuable stake in Dicks Sporting Goods Inc (NYSE:DKS), which was worth $111.3 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $89.3 million worth of shares. Tensile Capital, AQR Capital Management, and Millennium 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 Tensile Capital allocated the biggest weight to Dicks Sporting Goods Inc (NYSE:DKS), around 7.86% of its 13F portfolio. Six Columns Capital is also relatively very bullish on the stock, dishing out 1.18 percent of its 13F equity portfolio to DKS.
Due to the fact that Dicks Sporting Goods Inc (NYSE:DKS) has experienced declining sentiment from the entirety of the hedge funds we track, logic holds that there exists a select few hedgies that decided to sell off their positions entirely last quarter. At the top of the heap, Steve Cohen’s Point72 Asset Management dumped the biggest investment of all the hedgies followed by Insider Monkey, comprising about $50.9 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund said goodbye to about $45.3 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks similar to Dicks Sporting Goods Inc (NYSE:DKS). These stocks are Axon Enterprise, Inc. (NASDAQ:AAXN), LHC Group, Inc. (NASDAQ:LHCG), AutoNation, Inc. (NYSE:AN), and MSC Industrial Direct Co Inc (NYSE:MSM). All of these stocks’ market caps are similar to DKS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AAXN | 25 | 355346 | 5 |
| LHCG | 26 | 141372 | -3 |
| AN | 31 | 409983 | 7 |
| MSM | 30 | 252552 | 6 |
| Average | 28 | 289813 | 3.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $290 million. That figure was $516 million in DKS’s case. AutoNation, Inc. (NYSE:AN) is the most popular stock in this table. On the other hand Axon Enterprise, Inc. (NASDAQ:AAXN) is the least popular one with only 25 bullish hedge fund positions. Dicks Sporting Goods Inc (NYSE:DKS) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately DKS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); DKS investors were disappointed as the stock returned -57% during the same time period 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 most of these stocks already outperformed the market in Q1.
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.
