Were These Hedge Funds Right About Loading Up On Dicks Sporting Goods Inc (DKS)?

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 823 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Dicks Sporting Goods Inc (NYSE:DKS).

Dicks Sporting Goods Inc (NYSE:DKS) was in 40 hedge funds’ portfolios at the end of June. The all time high for this statistics is 44. DKS has experienced an increase in activity from the world’s largest hedge funds of late. There were 27 hedge funds in our database with DKS positions at the end of the first quarter. Our calculations also showed that DKS isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Clint Carlson of Carlson Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now we’re going to take a glance at the recent hedge fund action regarding Dicks Sporting Goods Inc (NYSE:DKS).

How have hedgies been trading Dicks Sporting Goods Inc (NYSE:DKS)?

At the end of the second quarter, a total of 40 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 48% from the previous quarter. On the other hand, there were a total of 23 hedge funds with a bullish position in DKS a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Scopus Asset Management, managed by Alexander Mitchell, holds the biggest position in Dicks Sporting Goods Inc (NYSE:DKS). Scopus Asset Management has a $68.1 million position in the stock, comprising 1.9% of its 13F portfolio. The second most bullish fund manager is Dmitry Balyasny of Balyasny Asset Management, with a $57.1 million position; 0.5% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors that hold long positions include Ken Griffin’s Citadel Investment Group, Israel Englander’s Millennium Management and Douglas Dossey and Arthur Young’s Tensile Capital. In terms of the portfolio weights assigned to each position Tensile Capital allocated the biggest weight to Dicks Sporting Goods Inc (NYSE:DKS), around 5.87% of its 13F portfolio. Pacifica Capital Investments is also relatively very bullish on the stock, setting aside 2.51 percent of its 13F equity portfolio to DKS.

Now, key money managers have been driving this bullishness. Moore Global Investments, managed by Louis Bacon, assembled the biggest position in Dicks Sporting Goods Inc (NYSE:DKS). Moore Global Investments had $15.1 million invested in the company at the end of the quarter. George McCabe’s Portolan Capital Management also made a $13.6 million investment in the stock during the quarter. The other funds with brand new DKS positions are Anand Parekh’s Alyeska Investment Group, Clint Carlson’s Carlson Capital, and Robert Pohly’s Samlyn Capital.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Dicks Sporting Goods Inc (NYSE:DKS) but similarly valued. We will take a look at Ultrapar Participacoes SA (NYSE:UGP), RLI Corp. (NYSE:RLI), Agios Pharmaceuticals Inc (NASDAQ:AGIO), Tapestry, Inc. (NYSE:TPR), Simpson Manufacturing Co, Inc. (NYSE:SSD), Alamos Gold Inc (NYSE:AGI), and DouYu International Holdings Limited (NASDAQ:DOYU). All of these stocks’ market caps are closest to DKS’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.1 hedge funds with bullish positions and the average amount invested in these stocks was $267 million. That figure was $493 million in DKS’s case. Tapestry, Inc. (NYSE:TPR) is the most popular stock in this table. On the other hand Ultrapar Participacoes SA (NYSE:UGP) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Dicks Sporting Goods Inc (NYSE:DKS) is more popular among hedge funds. Our overall hedge fund sentiment score for DKS is 87.3. 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 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 23% in 2020 through October 30th but still managed to beat the market by 20.1 percentage points. Hedge funds were also right about betting on DKS as the stock returned 38.1% since the end of June (through 10/30) 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.

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