Is Dycom Industries, Inc. (DY) Going to Burn These Hedge Funds?

Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 7.6% in the 12 months ending November 21, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, best performing hedge funds’ 30 preferred mid-cap stocks generated a return of 18% during the same 12-month period. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 17-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Dycom Industries, Inc. (NYSE:DY).

Is Dycom Industries, Inc. (NYSE:DY) undervalued? Money managers are surely turning bullish. The number of bullish hedge fund positions that are disclosed in regulatory 13F filings inched up by 2 in recent months. DY was in 34 hedge funds’ portfolios at the end of September. There were 32 hedge funds in our database with DY holdings at the end of the previous quarter. At the end of this article we will also compare DY to other stocks including Cornerstone OnDemand, Inc. (NASDAQ:CSOD), Performance Food Group Co (NYSE:PFGC), and ENSCO PLC (NYSE:ESV) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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What does the smart money think about Dycom Industries, Inc. (NYSE:DY)?

At Q3’s end, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a 6% uptick from the second quarter of 2016. There were a total of 30 hedge funds with a bullish position in DY at the beginning of this year, so ownership has also ticked up overall in 2016. With hedge funds’ capital changing hands, there exists a select group of notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Peconic Partners LLC, led by William Harnisch, holds the biggest position in Dycom Industries, Inc. (NYSE:DY). Peconic Partners LLC has a $178.1 million position in the stock, comprising 22.5% of its 13F portfolio. On Peconic Partners LLC’s heels is James Dinan of York Capital Management, with an $80 million position; the fund has 2.5% of its 13F portfolio invested in the stock. Remaining peers with similar optimism consist of Israel Englander’s Millennium Management, Paul Reeder and Edward Shapiro’s PAR Capital Management, and Richard S. Meisenberg’s ACK Asset Management. We should note that Peconic Partners LLC is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

As aggregate interest increased, key hedge funds were leading the bulls’ herd. PAR Capital Management created the biggest position in Dycom Industries, Inc. (NYSE:DY). PAR Capital Management had $38 million invested in the company at the end of the quarter. Jim Simons’ Renaissance Technologies also made a $29.4 million investment in the stock during the quarter. The other funds with new positions in the stock are John Overdeck and David Siegel’s Two Sigma Advisors, Joel Greenblatt’s Gotham Asset Management, and Glenn Russell Dubin’s Highbridge Capital Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Dycom Industries, Inc. (NYSE:DY) but similarly valued. These stocks are Cornerstone OnDemand, Inc. (NASDAQ:CSOD), Performance Food Group Co (NYSE:PFGC), ENSCO PLC (NYSE:ESV), and Prestige Brands Holdings, Inc. (NYSE:PBH). This group of stocks’ market valuations match DY’s market valuation.

As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $298 million. That figure was $505 million in DY’s case. ENSCO PLC (NYSE:ESV) is the most popular stock in this table. On the other hand Performance Food Group Co (NYSE:PFGC) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Dycom Industries, Inc. (NYSE:DY) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

Disclosure: None