How do you pick the next stock to invest in? One way would be to spend hours 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 Daktronics, Inc. (NASDAQ:DAKT).
Is Daktronics, Inc. (NASDAQ:DAKT) a buy here? The best stock pickers are reducing their bets on the stock. The number of bullish hedge fund bets decreased by 1 lately. Our calculations also showed that DAKT isn't among the 30 most popular stocks among hedge funds. DAKT was in 11 hedge funds' portfolios at the end of September. There were 12 hedge funds in our database with DAKT holdings at the end of the previous quarter.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's analyze the latest hedge fund action encompassing Daktronics, Inc. (NASDAQ:DAKT).
What does the smart money think about Daktronics, Inc. (NASDAQ:DAKT)?
Heading into the fourth quarter of 2018, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from the previous quarter. On the other hand, there were a total of 16 hedge funds with a bullish position in DAKT at the beginning of this year. With hedgies' sentiment swirling, there exists a select group of key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Daktronics, Inc. (NASDAQ:DAKT), which was worth $6.4 million at the end of the third quarter. On the second spot was D E Shaw which amassed $3.6 million worth of shares. Moreover, Royce & Associates, Two Sigma Advisors, and GAMCO Investors were also bullish on Daktronics, Inc. (NASDAQ:DAKT), allocating a large percentage of their portfolios to this stock.
Due to the fact that Daktronics, Inc. (NASDAQ:DAKT) has faced bearish sentiment from hedge fund managers, we can see that there is a sect of hedge funds that slashed their full holdings by the end of the third quarter. Interestingly, Peter Algert and Kevin Coldiron's Algert Coldiron Investors said goodbye to the largest investment of all the hedgies tracked by Insider Monkey, comprising close to $0.2 million in stock. Benjamin A. Smith's fund, Laurion Capital Management, also cut its stock, about $0.1 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 1 funds by the end of the third quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Daktronics, Inc. (NASDAQ:DAKT) but similarly valued. These stocks are 22nd Century Group, Inc (NYSE:XXII), Clough Global Opportunities Fund (NYSE:GLO), Hibbett Sports, Inc. (NASDAQ:HIBB), and Simulations Plus, Inc. (NASDAQ:SLP). This group of stocks' market valuations resemble DAKT's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position XXII,5,3597,1 GLO,2,136,2 HIBB,13,48726,-3 SLP,5,20484,-2 Average,6.25,18236,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.25 hedge funds with bullish positions and the average amount invested in these stocks was $18 million. That figure was $17 million in DAKT's case. Hibbett Sports, Inc. (NASDAQ:HIBB) is the most popular stock in this table. On the other hand Clough Global Opportunities Fund (NYSE:GLO) is the least popular one with only 2 bullish hedge fund positions. Daktronics, Inc. (NASDAQ:DAKT) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. In this regard HIBB might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.