Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Diplomat Pharmacy Inc (NYSE:DPLO)? The smart money sentiment can provide an answer to this question.
Diplomat Pharmacy Inc (NYSE:DPLO) investors should be aware of an increase in enthusiasm from smart money recently. Our calculations also showed that DPLO 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In the eyes of most investors, hedge funds are assumed to be underperforming, outdated investment tools of years past. While there are more than 8000 funds with their doors open at present, Our researchers choose to focus on the upper echelon of this club, approximately 750 funds. These money managers have their hands on bulk of all hedge funds’ total capital, and by tracking their finest investments, Insider Monkey has brought to light several investment strategies that have historically exceeded the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points annually since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
James E. Flynn of Deerfield 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 check out the key hedge fund action surrounding Diplomat Pharmacy Inc (NYSE:DPLO).
What does smart money think about Diplomat Pharmacy Inc (NYSE:DPLO)?
At Q3’s end, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards DPLO over the last 17 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Armistice Capital was the largest shareholder of Diplomat Pharmacy Inc (NYSE:DPLO), with a stake worth $26.5 million reported as of the end of September. Trailing Armistice Capital was Deerfield Management, which amassed a stake valued at $14.7 million. Millennium Management, D E Shaw, and Balyasny Asset 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 Armistice Capital allocated the biggest weight to Diplomat Pharmacy Inc (NYSE:DPLO), around 1.75% of its 13F portfolio. Deerfield Management is also relatively very bullish on the stock, dishing out 0.6 percent of its 13F equity portfolio to DPLO.
As industrywide interest jumped, some big names were breaking ground themselves. Millennium Management, managed by Israel Englander, initiated the most valuable position in Diplomat Pharmacy Inc (NYSE:DPLO). Millennium Management had $7.1 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also made a $5.5 million investment in the stock during the quarter. The other funds with brand new DPLO positions are Dmitry Balyasny’s Balyasny Asset Management, Ken Griffin’s Citadel Investment Group, and Noam Gottesman’s GLG Partners.
Let’s also examine hedge fund activity in other stocks similar to Diplomat Pharmacy Inc (NYSE:DPLO). These stocks are Spark Energy, Inc. (NASDAQ:SPKE), Kimball Electronics Inc (NASDAQ:KE), Golden Entertainment Inc (NASDAQ:GDEN), and Tuniu Corporation (NASDAQ:TOUR). This group of stocks’ market caps match DPLO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SPKE | 8 | 14186 | -3 |
| KE | 10 | 20155 | 1 |
| GDEN | 12 | 75579 | 1 |
| TOUR | 3 | 21391 | -1 |
| Average | 8.25 | 32828 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.25 hedge funds with bullish positions and the average amount invested in these stocks was $33 million. That figure was $62 million in DPLO’s case. Golden Entertainment Inc (NASDAQ:GDEN) is the most popular stock in this table. On the other hand Tuniu Corporation (NASDAQ:TOUR) is the least popular one with only 3 bullish hedge fund positions. Diplomat Pharmacy Inc (NYSE:DPLO) 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. 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 DPLO wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on DPLO were disappointed as the stock returned 5.1% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
