Were Hedge Funds Illusioned With Discovery Inc. (DISCA)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 867 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of September 30th. Hedge funds’ consensus stock picks performed spectacularly over the last 3 years, but 2022 hasn’t been kind to hedge funds. In this article we look at how hedge funds traded Discovery Inc. (NASDAQ:DISCA) and determine whether the smart money was really smart about this stock.

Discovery Inc. (NASDAQ:DISCA) investors should pay attention to a decrease in support from the world’s most elite money managers of late. Discovery Inc. (NASDAQ:DISCA) was in 42 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 48. Our calculations also showed that DISCA 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. With all of this in mind we’re going to take a glance at the recent hedge fund action surrounding Discovery Inc. (NASDAQ:DISCA).

Ian Wace of Marshall Wace

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

At the end of September, a total of 42 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the previous quarter. On the other hand, there were a total of 29 hedge funds with a bullish position in DISCA a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Mitch Kuflik and Rob Sobel’s Brahman Capital has the number one position in Discovery Inc. (NASDAQ:DISCA), worth close to $75.6 million, amounting to 5.5% of its total 13F portfolio. The second largest stake is held by Two Sigma Advisors, managed by John Overdeck and David Siegel, which holds a $69.1 million position; 0.2% of its 13F portfolio is allocated to the company. Remaining members of the smart money that hold long positions contain Benjamin A. Smith’s Laurion Capital Management, Dmitry Balyasny’s Balyasny Asset Management and Paul Marshall and Ian Wace’s Marshall Wace LLP. In terms of the portfolio weights assigned to each position Nokota Management allocated the biggest weight to Discovery Inc. (NASDAQ:DISCA), around 19.05% of its 13F portfolio. Quaker Capital Investments is also relatively very bullish on the stock, setting aside 9.95 percent of its 13F equity portfolio to DISCA.

Because Discovery Inc. (NASDAQ:DISCA) has witnessed a decline in interest from the smart money, it’s easy to see that there was a specific group of hedgies that decided to sell off their positions entirely in the third quarter. Intriguingly, John Paulson’s Paulson & Co said goodbye to the biggest stake of the “upper crust” of funds followed by Insider Monkey, worth close to $26.3 million in call options. Israel Englander’s fund, Millennium Management, also cut its call options, about $25.5 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds in the third quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Discovery Inc. (NASDAQ:DISCA) but similarly valued. We will take a look at Whirlpool Corporation (NYSE:WHR), Santander Consumer USA Holdings Inc (NYSE:SC), Aluminum Corp. of China Limited (NYSE:ACH), Kimco Realty Corp (NYSE:KIM), Floor & Decor Holdings, Inc. (NYSE:FND), DENTSPLY SIRONA Inc. (NASDAQ:XRAY), and Korea Electric Power Corporation (NYSE:KEP). This group of stocks’ market values are closest to DISCA’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.9 hedge funds with bullish positions and the average amount invested in these stocks was $606 million. That figure was $516 million in DISCA’s case. DENTSPLY SIRONA Inc. (NASDAQ:XRAY) is the most popular stock in this table. On the other hand Korea Electric Power Corporation (NYSE:KEP) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Discovery Inc. (NASDAQ:DISCA) is more popular among hedge funds. Our overall hedge fund sentiment score for DISCA is 79.3. 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. 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 returned 29.6% in 2021 and managed to beat the market by another 3.6 percentage points. Hedge funds were also right about betting on DISCA as the stock returned 10% since the end of September (through 1/31) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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