Is DISCA Stock A Buy or Sell?

After several tireless days we have finished crunching the numbers from nearly 900 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of December 31st. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Discovery Inc. (NASDAQ:DISCA).

Is DISCA stock a buy? The best stock pickers were getting less optimistic. The number of bullish hedge fund positions shrunk by 1 recently. Discovery Inc. (NASDAQ:DISCA) was in 28 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 38. Our calculations also showed that DISCA isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 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.

Bill Miller of Miller Value Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now 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. Keeping this in mind let’s take a gander at the recent hedge fund action encompassing Discovery Inc. (NASDAQ:DISCA).

Do Hedge Funds Think DISCA Is A Good Stock To Buy Now?

At Q4’s end, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -3% from the previous quarter. The graph below displays the number of hedge funds with bullish position in DISCA over the last 22 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

Among these funds, Miller Value Partners held the most valuable stake in Discovery Inc. (NASDAQ:DISCA), which was worth $51.7 million at the end of the fourth quarter. On the second spot was GAMCO Investors which amassed $34.5 million worth of shares. Quaker Capital Investments, Zimmer Partners, and Voleon 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 Quaker Capital Investments allocated the biggest weight to Discovery Inc. (NASDAQ:DISCA), around 12.57% of its 13F portfolio. Scion Asset Management is also relatively very bullish on the stock, earmarking 3.35 percent of its 13F equity portfolio to DISCA.

Due to the fact that Discovery Inc. (NASDAQ:DISCA) has witnessed bearish sentiment from the smart money, logic holds that there was a specific group of hedge funds that elected to cut their entire stakes by the end of the fourth quarter. It’s worth mentioning that Steven Tananbaum’s GoldenTree Asset Management dumped the biggest position of the 750 funds watched by Insider Monkey, totaling about $17.5 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund cut about $5.6 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds by the end of the fourth quarter.

Let’s also examine hedge fund activity in other stocks similar to Discovery Inc. (NASDAQ:DISCA). We will take a look at Crown Holdings, Inc. (NYSE:CCK), Brookfield Property Partners LP (NYSE:BPY), Brown & Brown, Inc. (NYSE:BRO), ON Semiconductor Corporation (NASDAQ:ON), Sarepta Therapeutics Inc (NASDAQ:SRPT), Cable One Inc (NYSE:CABO), and Penn National Gaming, Inc (NASDAQ:PENN). This group of stocks’ market caps match DISCA’s market cap.

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As you can see these stocks had an average of 34.4 hedge funds with bullish positions and the average amount invested in these stocks was $1071 million. That figure was $227 million in DISCA’s case. Crown Holdings, Inc. (NYSE:CCK) is the most popular stock in this table. On the other hand Brookfield Property Partners LP (NYSE:BPY) is the least popular one with only 9 bullish hedge fund positions. Discovery Inc. (NASDAQ:DISCA) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for DISCA is 43.7. 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 12.3% in 2021 through April 19th and still beat the market by 0.9 percentage points. A small number of hedge funds were also right about betting on DISCA as the stock returned 20.9% since the end of the fourth quarter (through 4/19) and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.

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