This Metric Says You Are Smart to Sell Dorman Products Inc. (DORM)

Dorman Products Inc. (NASDAQ:DORM) shareholders have witnessed a decrease in hedge fund interest in recent months.

According to most shareholders, hedge funds are seen as worthless, outdated investment tools of yesteryear. While there are more than 8000 funds in operation at present, we at Insider Monkey look at the leaders of this club, about 450 funds. It is widely believed that this group has its hands on the majority of all hedge funds’ total capital, and by keeping an eye on their top stock picks, we have found a few investment strategies that have historically outperformed the broader indices. Our small-cap hedge fund strategy outstripped the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have outpaced the S&P 500 index by 24 percentage points in 7 months (see the details here).

Equally as integral, positive insider trading activity is a second way to break down the marketplace. Just as you’d expect, there are plenty of stimuli for a bullish insider to cut shares of his or her company, but only one, very obvious reason why they would initiate a purchase. Many academic studies have demonstrated the market-beating potential of this method if piggybackers know what to do (learn more here).

Now, let’s take a look at the latest action encompassing Dorman Products Inc. (NASDAQ:DORM).

Hedge fund activity in Dorman Products Inc. (NASDAQ:DORM)

Heading into 2013, a total of 7 of the hedge funds we track were bullish in this stock, a change of 0% from one quarter earlier. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings meaningfully.

Of the funds we track, Chuck Royce’s Royce & Associates had the biggest position in Dorman Products Inc. (NASDAQ:DORM), worth close to $133.5 million, comprising 0.4% of its total 13F portfolio. Coming in second is Whitebox Advisors, managed by Andy Redleaf, which held a $1.5 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining hedgies that are bullish include D. E. Shaw’s D E Shaw, Murray Stahl’s Horizon Asset Management and Jim Simons’s Renaissance Technologies.

Since Dorman Products Inc. (NASDAQ:DORM) has faced bearish sentiment from hedge fund managers, it’s safe to say that there were a few money managers that decided to sell off their positions entirely last quarter. Interestingly, Steven Cohen’s SAC Capital Advisors dropped the biggest position of the 450+ funds we monitor, comprising about $0.2 million in stock. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

What have insiders been doing with Dorman Products Inc. (NASDAQ:DORM)?

Bullish insider trading is best served when the company in focus has seen transactions within the past six months. Over the last 180-day time period, Dorman Products Inc. (NASDAQ:DORM) has experienced zero unique insiders purchasing, and 4 insider sales (see the details of insider trades here).

Let’s also take a look at hedge fund and insider activity in other stocks similar to Dorman Products Inc. (NASDAQ:DORM). These stocks are Dana Holding Corporation (NYSE:DAN), Tenneco Inc (NYSE:TEN), American Axle & Manufact. Holdings, Inc. (NYSE:AXL), Westport Innovations Inc. (USA) (NASDAQ:WPRT), and Monro Muffler Brake Inc (NASDAQ:MNRO). This group of stocks belong to the auto parts industry and their market caps are similar to DORM’s market cap.