Is Dolby Laboratories, Inc. (DLB) Going to Burn These Hedge Funds?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Dolby Laboratories, Inc. (NYSE:DLB) and determine whether the smart money was really smart about this stock.

Is Dolby Laboratories, Inc. (NYSE:DLB) the right pick for your portfolio? Money managers were taking a bearish view. The number of bullish hedge fund bets dropped by 1 recently. Dolby Laboratories, Inc. (NYSE:DLB) was in 28 hedge funds’ portfolios at the end of June. The all time high for this statistics is 33. Our calculations also showed that DLB isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Michael Price of MFP Investors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 to get excerpts of these letters in your inbox. Now we’re going to view the recent hedge fund action regarding Dolby Laboratories, Inc. (NYSE:DLB).

How are hedge funds trading Dolby Laboratories, Inc. (NYSE:DLB)?

Heading into the third quarter of 2020, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -3% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards DLB over the last 20 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, Renaissance Technologies was the largest shareholder of Dolby Laboratories, Inc. (NYSE:DLB), with a stake worth $121.8 million reported as of the end of September. Trailing Renaissance Technologies was Southpoint Capital Advisors, which amassed a stake valued at $65.9 million. Nantahala Capital Management, MFP Investors, and Trigran Investments 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 Trigran Investments allocated the biggest weight to Dolby Laboratories, Inc. (NYSE:DLB), around 6.82% of its 13F portfolio. MFP Investors is also relatively very bullish on the stock, earmarking 6.54 percent of its 13F equity portfolio to DLB.

Due to the fact that Dolby Laboratories, Inc. (NYSE:DLB) has witnessed bearish sentiment from hedge fund managers, it’s easy to see that there were a few hedgies who sold off their full holdings last quarter. Intriguingly, Noam Gottesman’s GLG Partners dumped the biggest position of the 750 funds monitored by Insider Monkey, worth about $3.4 million in stock. Steve Cohen’s fund, Point72 Asset Management, also cut its stock, about $2.1 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 1 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Dolby Laboratories, Inc. (NYSE:DLB) but similarly valued. These stocks are UGI Corp (NYSE:UGI), Diamondback Energy Inc (NASDAQ:FANG), Carlisle Companies, Inc. (NYSE:CSL), The Boston Beer Company Inc (NYSE:SAM), Lear Corporation (NYSE:LEA), Bausch Health Companies Inc. (NYSE:BHC), and Kingsoft Cloud Holdings Limited (NASDAQ:KC). All of these stocks’ market caps resemble DLB’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.6 hedge funds with bullish positions and the average amount invested in these stocks was $596 million. That figure was $490 million in DLB’s case. Lear Corporation (NYSE:LEA) is the most popular stock in this table. On the other hand Kingsoft Cloud Holdings Limited (NASDAQ:KC) is the least popular one with only 20 bullish hedge fund positions. Dolby Laboratories, Inc. (NYSE:DLB) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for DLB is 48.5. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 21.3% in 2020 through September 25th and surpassed the market by 17.7 percentage points. Unfortunately DLB wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); DLB investors were disappointed as the stock returned -1% since Q2 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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