We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Dril-Quip, Inc. (NYSE:DRQ).
Dril-Quip, Inc. (NYSE:DRQ) was in 21 hedge funds’ portfolios at the end of the fourth quarter of 2019. DRQ investors should pay attention to an increase in hedge fund interest recently. There were 20 hedge funds in our database with DRQ holdings at the end of the previous quarter. Our calculations also showed that DRQ 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 21st century investor’s toolkit there are a large number of signals shareholders use to value publicly traded companies. Two of the best signals are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the top picks of the top hedge fund managers can outclass the market by a healthy margin (see the details here).
Ken Fisher of Fisher Asset Management
We leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. 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 we’re going to take a look at the latest hedge fund action regarding Dril-Quip, Inc. (NYSE:DRQ).
How are hedge funds trading Dril-Quip, Inc. (NYSE:DRQ)?
At Q4’s end, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from the previous quarter. On the other hand, there were a total of 19 hedge funds with a bullish position in DRQ a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Fisher Asset Management, managed by Ken Fisher, holds the number one position in Dril-Quip, Inc. (NYSE:DRQ). Fisher Asset Management has a $72 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is Mario Gabelli of GAMCO Investors, with a $27.6 million position; 0.2% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that hold long positions consist of Daniel Beltzman and Gergory Smith’s Birch Run Capital, John Overdeck and David Siegel’s Two Sigma Advisors and Paul Tudor Jones’s Tudor Investment Corp. In terms of the portfolio weights assigned to each position Birch Run Capital allocated the biggest weight to Dril-Quip, Inc. (NYSE:DRQ), around 2.58% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, designating 0.26 percent of its 13F equity portfolio to DRQ.
Consequently, some big names were breaking ground themselves. Weld Capital Management, managed by Minhua Zhang, established the most outsized position in Dril-Quip, Inc. (NYSE:DRQ). Weld Capital Management had $1.3 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also initiated a $1.1 million position during the quarter. The other funds with new positions in the stock are Cliff Asness’s AQR Capital Management, David Harding’s Winton Capital Management, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Dril-Quip, Inc. (NYSE:DRQ) but similarly valued. We will take a look at Colony Credit Real Estate, Inc. (NYSE:CLNC), Sonos, Inc. (NASDAQ:SONO), Alexander’s, Inc. (NYSE:ALX), and Grupo Simec S.A.B. de C.V. (NYSE:SIM). This group of stocks’ market valuations match DRQ’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CLNC | 8 | 26571 | 1 |
| SONO | 26 | 196559 | -3 |
| ALX | 13 | 115349 | 1 |
| SIM | 1 | 2589 | 0 |
| Average | 12 | 85267 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $85 million. That figure was $130 million in DRQ’s case. Sonos, Inc. (NASDAQ:SONO) is the most popular stock in this table. On the other hand Grupo Simec S.A.B. de C.V. (NYSE:SIM) is the least popular one with only 1 bullish hedge fund positions. Dril-Quip, Inc. (NYSE:DRQ) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately DRQ wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on DRQ were disappointed as the stock returned -36.2% 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 many of these stocks already outperformed the market so far this year.
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.
