Were Expert Investors Right About Dynatrace, Inc. (DT)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Dynatrace, Inc. (NYSE:DT) and determine whether hedge funds had an edge regarding this stock.

Dynatrace, Inc. (NYSE:DT) was in 41 hedge funds’ portfolios at the end of September. The all time high for this statistic is 53. DT investors should pay attention to a decrease in activity from the world’s largest hedge funds of late. There were 50 hedge funds in our database with DT holdings at the end of June. Our calculations also showed that DT isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

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. Keeping this in mind let’s take a look at the latest hedge fund action regarding Dynatrace, Inc. (NYSE:DT).

Dmitry Balyasny of Balyasny Asset Management

Do Hedge Funds Think DT Is A Good Stock To Buy Now?

At Q3’s end, a total of 41 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from the previous quarter. The graph below displays the number of hedge funds with bullish position in DT over the last 25 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

The largest stake in Dynatrace, Inc. (NYSE:DT) was held by HMI Capital, which reported holding $357.1 million worth of stock at the end of September. It was followed by SRS Investment Management with a $307.1 million position. Other investors bullish on the company included Melvin Capital Management, Alkeon Capital Management, and Matrix Capital Management. In terms of the portfolio weights assigned to each position Cota Capital allocated the biggest weight to Dynatrace, Inc. (NYSE:DT), around 11.74% of its 13F portfolio. HMI Capital is also relatively very bullish on the stock, earmarking 10.71 percent of its 13F equity portfolio to DT.

Because Dynatrace, Inc. (NYSE:DT) has experienced falling interest from hedge fund managers, we can see that there were a few money managers who were dropping their entire stakes last quarter. Intriguingly, Glen Kacher’s Light Street Capital sold off the biggest investment of the 750 funds monitored by Insider Monkey, valued at an estimated $42.7 million in stock, and John Hurley’s Cavalry Asset Management was right behind this move, as the fund cut about $20.9 million worth. These moves are interesting, as total hedge fund interest was cut by 9 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Dynatrace, Inc. (NYSE:DT) but similarly valued. We will take a look at NetApp Inc. (NASDAQ:NTAP), Teledyne Technologies Incorporated (NYSE:TDY), Citizens Financial Group Inc (NYSE:CFG), Entergy Corporation (NYSE:ETR), RingCentral Inc (NYSE:RNG), Darden Restaurants, Inc. (NYSE:DRI), and ON Semiconductor Corporation (NASDAQ:ON). This group of stocks’ market valuations match DT’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $1073 million. That figure was $2389 million in DT’s case. RingCentral Inc (NYSE:RNG) is the most popular stock in this table. On the other hand Darden Restaurants, Inc. (NYSE:DRI) is the least popular one with only 25 bullish hedge fund positions. Dynatrace, Inc. (NYSE:DT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DT is 54. 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 positive signal but 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 29.6% in 2021 and beat the market again by 3.6 percentage points. Unfortunately, DT wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on DT were disappointed as the stock returned -22.7% since the end of September (through 1/31) 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 all of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.