Should You Buy Dril-Quip, Inc. (DRQ)?

It’s a little-known fact that stock performance is not evenly distributed (i.e. you don’t have a 50/50 chance of picking a market-beating stock). In fact, despite the S&P 500 gaining about 5.2% between November 1, 2014 and October 30, 2015, less than 49% of the stocks in the index beat the market during that time. In contrast, the 30 stocks from the index which were the most popular among the investors that we track returned 9.5% during that time and 63% of them beat the market. This shows that while hedge funds get a lot of flak from the mainstream media for their performance, it can be rewarding to follow their moves using the right sets of data. Even then, there is never a fool proof strategy to generating returns, as even the collective wisdom of top hedge funds gets it wrong sometimes, as in the case of some of their top picks from the index like Micron and Anadarko. The data, though, shows that following the collective wisdom of select hedge funds can be a very wise move overall.

Hedge fund interest in Dril-Quip, Inc. (NYSE:DRQ) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare DRQ to other stocks, including Companhia Paranaense de Energia (ADR) (NYSE:ELP), Portola Pharmaceuticals Inc (NASDAQ:PTLA), and CONSOL Energy Inc. (NYSE:CNX) to get a better sense of its popularity.

In today’s marketplace there are plenty of gauges market participants employ to assess publicly traded companies. A couple of the less known gauges are hedge fund and insider trading sentiment. Our researchers have shown that, historically, those who follow the top picks of the top money managers can outpace their index-focused peers by a superb margin (see the details here).

With all of this in mind, we’re going to take a peek at the recent action regarding Dril-Quip, Inc. (NYSE:DRQ).

What have hedge funds been doing with Dril-Quip, Inc. (NYSE:DRQ)?

At the end of the third quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter. With the smart money’s sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Millennium Management, managed by Israel Englander, holds the biggest position in Dril-Quip, Inc. (NYSE:DRQ). Millennium Management has a $22.7 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Sitting at the No. 2 spot is Ken Fisher’s Fisher Asset Management, with an $21.9 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism comprise Joel Greenblatt’s Gotham Asset Management, Matthew A. Weatherbie’s Weatherbie Capital and Daniel Beltzman and Gergory Smith’s Birch Run Capital.

Seeing as Dril-Quip, Inc. (NYSE:DRQ) has witnessed bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there were a few hedge funds who were dropping their full holdings by the end of the third quarter. Interestingly, Jim Simons’s Renaissance Technologies sold off the biggest investment of the “upper crust” of funds monitored by Insider Monkey, valued at close to $21.4 million in stock, and Clint Murray’s Lodge Hill Capital was right behind this move, as the fund cut about $7.9 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review 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 Companhia Paranaense de Energia (ADR) (NYSE:ELP), Portola Pharmaceuticals Inc (NASDAQ:PTLA), CONSOL Energy Inc. (NYSE:CNX), and Cooper Tire & Rubber Company (NYSE:CTB). This group of stocks’ market values match DRQ’s market value.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $430 million, versus $96 million in DRQ’s case. Portola Pharmaceuticals Inc (NASDAQ:PTLA) is the most popular stock in this table, while Companhia Paranaense de Energia (ADR) (NYSE:ELP) is the least popular one with only 5 bullish hedge fund positions. Dril-Quip, Inc. (NYSE:DRQ) is not the least popular stock in this group, but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard PTLA might be a better candidate to consider a long position.