Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s analyze whether Dropbox, Inc. (NASDAQ:DBX) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
Is Dropbox, Inc. (NASDAQ:DBX) worth your attention right now? The smart money is in an optimistic mood. The number of long hedge fund positions improved by 4 lately. Our calculations also showed that DBX isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Gil Simon of SoMa Equity Partners
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to view the key hedge fund action surrounding Dropbox, Inc. (NASDAQ:DBX).
Hedge fund activity in Dropbox, Inc. (NASDAQ:DBX)
At the end of the fourth quarter, a total of 46 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from one quarter earlier. On the other hand, there were a total of 35 hedge funds with a bullish position in DBX a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Dropbox, Inc. (NASDAQ:DBX) was held by Renaissance Technologies, which reported holding $315.2 million worth of stock at the end of September. It was followed by D E Shaw with a $104.5 million position. Other investors bullish on the company included SoMa Equity Partners, AQR Capital Management, and Valiant Capital. In terms of the portfolio weights assigned to each position SoMa Equity Partners allocated the biggest weight to Dropbox, Inc. (NASDAQ:DBX), around 6.36% of its 13F portfolio. Cota Capital is also relatively very bullish on the stock, earmarking 5.82 percent of its 13F equity portfolio to DBX.
Now, key money managers were breaking ground themselves. Greenvale Capital, managed by Bruce Emery, initiated the largest position in Dropbox, Inc. (NASDAQ:DBX). Greenvale Capital had $11.6 million invested in the company at the end of the quarter. Bobby Yazdani and Babak Poushanchi’s Cota Capital also initiated a $10.5 million position during the quarter. The other funds with new positions in the stock are Sander Gerber’s Hudson Bay Capital Management, C. Jonathan Gattman’s Cloverdale Capital Management, and Marc Majzner’s Clearline Capital.
Let’s now review hedge fund activity in other stocks similar to Dropbox, Inc. (NASDAQ:DBX). These stocks are Algonquin Power & Utilities Corp. (NYSE:AQN), CyrusOne Inc (NASDAQ:CONE), AptarGroup, Inc. (NYSE:ATR), and People’s United Financial, Inc. (NASDAQ:PBCT). All of these stocks’ market caps are closest to DBX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AQN | 13 | 248252 | -3 |
| CONE | 32 | 345805 | 8 |
| ATR | 25 | 137409 | 2 |
| PBCT | 22 | 125898 | -3 |
| Average | 23 | 214341 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $214 million. That figure was $840 million in DBX’s case. CyrusOne Inc (NASDAQ:CONE) is the most popular stock in this table. On the other hand Algonquin Power & Utilities Corp. (NYSE:AQN) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Dropbox, Inc. (NASDAQ:DBX) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 1.3% in 2020 through May 1st but still managed to beat the market by 12.9 percentage points. Hedge funds were also right about betting on DBX as the stock returned 9.4% so far in 2020 (through May 1st) 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.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
