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Is DCP Stock A Buy Here?

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·6 min read
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In this article we will take a look at whether hedge funds think DCP Midstream LP (NYSE:DCP) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is DCP stock a buy? DCP Midstream LP (NYSE:DCP) investors should be aware of an increase in activity from the world's largest hedge funds in recent months. DCP Midstream LP (NYSE:DCP) was in 4 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 6. There were 3 hedge funds in our database with DCP holdings at the end of December. Our calculations also showed that DCP isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.

Ryan Tolkin, CIO of Schonfeld Strategic Advisors

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund wants to buy this $28 biotech stock for $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery 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. 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 homepage. Now let's take a glance at the fresh hedge fund action surrounding DCP Midstream LP (NYSE:DCP).

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

At the end of March, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from one quarter earlier. On the other hand, there were a total of 4 hedge funds with a bullish position in DCP a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

According to Insider Monkey's hedge fund database, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital has the biggest position in DCP Midstream LP (NYSE:DCP), worth close to $17.3 million, amounting to less than 0.1%% of its total 13F portfolio. The second most bullish fund manager is Citadel Investment Group, managed by Ken Griffin, which holds a $7.2 million call position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions encompass Ken Griffin's Citadel Investment Group, Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors and Matthew Hulsizer's PEAK6 Capital Management. In terms of the portfolio weights assigned to each position Heronetta Management allocated the biggest weight to DCP Midstream LP (NYSE:DCP), around 0.62% of its 13F portfolio. Arrowstreet Capital is also relatively very bullish on the stock, dishing out 0.02 percent of its 13F equity portfolio to DCP.

As one would reasonably expect, some big names have been driving this bullishness. Citadel Investment Group, managed by Ken Griffin, established the most outsized position in DCP Midstream LP (NYSE:DCP). Citadel Investment Group had $1.6 million invested in the company at the end of the quarter. Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors also initiated a $1.1 million position during the quarter.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as DCP Midstream LP (NYSE:DCP) but similarly valued. These stocks are Simpson Manufacturing Co, Inc. (NYSE:SSD), Semtech Corporation (NASDAQ:SMTC), Open Lending Corporation (NASDAQ:LPRO), Sonos, Inc. (NASDAQ:SONO), Qurate Retail, Inc. (NASDAQ:QRTEA), Home Bancshares Inc (Conway, AR) (NASDAQ:HOMB), and Inovalon Holdings Inc (NASDAQ:INOV). This group of stocks' market valuations resemble DCP's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SSD,25,239346,0 SMTC,21,209600,4 LPRO,33,511506,-1 SONO,46,763124,3 QRTEA,31,776294,-5 HOMB,6,48515,-6 INOV,17,108170,-5 Average,25.6,379508,-1.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.6 hedge funds with bullish positions and the average amount invested in these stocks was $380 million. That figure was $21 million in DCP's case. Sonos, Inc. (NASDAQ:SONO) is the most popular stock in this table. On the other hand Home Bancshares Inc (NASDAQ:HOMB) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks DCP Midstream LP (NYSE:DCP) is even less popular than HOMB. Our overall hedge fund sentiment score for DCP is 26. 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. Hedge funds clearly dropped the ball on DCP as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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 17.2% in 2021 through June 11th and still beat the market by 3.3 percentage points. A small number of hedge funds were also right about betting on DCP as the stock returned 44.3% since Q1 (through June 11th) and outperformed the market by an even larger margin.

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

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