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 the smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Dow Inc. (NYSE:DOW)? The smart money sentiment can provide an answer to this question.
Dow Inc. (NYSE:DOW) shareholders have witnessed an increase in support from the world’s most elite money managers lately. Dow Inc. (NYSE:DOW) was in 42 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 47. There were 40 hedge funds in our database with DOW positions at the end of the second quarter. Our calculations also showed that DOW isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).
Thomas Claugus of GMT Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind we’re going to review the key hedge fund action encompassing Dow Inc. (NYSE:DOW).
Do Hedge Funds Think DOW Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 42 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in DOW over the last 25 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
The largest stake in Dow Inc. (NYSE:DOW) was held by Pzena Investment Management, which reported holding $357.6 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $105.7 million position. Other investors bullish on the company included Renaissance Technologies, Millennium Management, and Masters Capital Management. In terms of the portfolio weights assigned to each position Masters Capital Management allocated the biggest weight to Dow Inc. (NYSE:DOW), around 2.38% of its 13F portfolio. Pzena Investment Management is also relatively very bullish on the stock, dishing out 1.42 percent of its 13F equity portfolio to DOW.
Consequently, specific money managers have been driving this bullishness. Renaissance Technologies, created the largest position in Dow Inc. (NYSE:DOW). Renaissance Technologies had $96.1 million invested in the company at the end of the quarter. Mike Masters’s Masters Capital Management also made a $57.6 million investment in the stock during the quarter. The following funds were also among the new DOW investors: Thomas E. Claugus’s GMT Capital, Frank Fu’s CaaS Capital, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.
Let’s now review hedge fund activity in other stocks similar to Dow Inc. (NYSE:DOW). These stocks are Simon Property Group, Inc (NYSE:SPG), Microchip Technology Incorporated (NASDAQ:MCHP), Vodafone Group Plc (NASDAQ:VOD), Biogen Inc. (NASDAQ:BIIB), O’Reilly Automotive Inc (NASDAQ:ORLY), Cadence Design Systems Inc (NASDAQ:CDNS), and Roku, Inc. (NASDAQ:ROKU). All of these stocks’ market caps resemble DOW’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SPG | 38 | 726426 | 1 |
| MCHP | 41 | 1122273 | -9 |
| VOD | 18 | 613771 | 1 |
| BIIB | 66 | 1923895 | -1 |
| ORLY | 44 | 2294006 | 0 |
| CDNS | 33 | 1922561 | 0 |
| ROKU | 57 | 2828579 | -4 |
| Average | 42.4 | 1633073 | -1.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 42.4 hedge funds with bullish positions and the average amount invested in these stocks was $1633 million. That figure was $747 million in DOW’s case. Biogen Inc. (NASDAQ:BIIB) is the most popular stock in this table. On the other hand Vodafone Group Plc (NASDAQ:VOD) is the least popular one with only 18 bullish hedge fund positions. Dow Inc. (NYSE:DOW) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for DOW is 58.8. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.6% in 2021 through November 30th and surpassed the market again by 5.6 percentage points. Unfortunately DOW wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); DOW investors were disappointed as the stock returned -3.4% since the end of September (through 11/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.
Follow Dow Inc. (NYSE:DOW)
Follow Dow Inc. (NYSE:DOW)
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Disclosure: None. This article was originally published at Insider Monkey.
