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Is DEH A Good Stock To Buy?

Asma UL Husna
·6 min read

How do you pick the next stock to invest in? One way would be to spend days 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 D8 Holdings Corp. (NYSE:DEH).

Is DEH a good stock to buy now? Prominent investors were turning bullish. The number of bullish hedge fund bets went up by 20 in recent months. D8 Holdings Corp. (NYSE:DEH) was in 20 hedge funds' portfolios at the end of September. Our calculations also showed that DEH isn't among the 30 most popular stocks among hedge funds (click for Q3 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Paul Glazer of Glazer Capital
Paul Glazer of Glazer Capital

Paul Glazer of Glazer Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Now we're going to review the new hedge fund action surrounding D8 Holdings Corp. (NYSE:DEH).

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

At third quarter's end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20 from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in DEH over the last 21 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Glazer Capital was the largest shareholder of D8 Holdings Corp. (NYSE:DEH), with a stake worth $19 million reported as of the end of September. Trailing Glazer Capital was Athanor Capital, which amassed a stake valued at $16.1 million. Magnetar Capital, Glazer Capital, and Aristeia Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Glazer Capital allocated the biggest weight to D8 Holdings Corp. (NYSE:DEH), around 0.93% of its 13F portfolio. Athanor Capital is also relatively very bullish on the stock, dishing out 0.61 percent of its 13F equity portfolio to DEH.

As aggregate interest increased, key money managers were breaking ground themselves. Glazer Capital, managed by Paul Glazer, initiated the most outsized position in D8 Holdings Corp. (NYSE:DEH). Glazer Capital had $19 million invested in the company at the end of the quarter. Parvinder Thiara's Athanor Capital also initiated a $16.1 million position during the quarter. The following funds were also among the new DEH investors: Alec Litowitz and Ross Laser's Magnetar Capital, Paul Glazer's Glazer Capital, and Robert Henry Lynch's Aristeia Capital.

Let's check out hedge fund activity in other stocks similar to D8 Holdings Corp. (NYSE:DEH). We will take a look at Kala Pharmaceuticals, Inc. (NASDAQ:KALA), Univest Financial Corporation (NASDAQ:UVSP), Progenity, Inc. (NASDAQ:PROG), Triple-S Management Corp.(NYSE:GTS), First Mid Bancshares, Inc. (NASDAQ:FMBH), American Public Education, Inc. (NASDAQ:APEI), and Consolidated Communications Holdings Inc (NASDAQ:CNSL). All of these stocks' market caps are closest to DEH's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KALA,18,142580,-1 UVSP,11,49515,-1 PROG,7,6786,-3 GTS,11,87709,1 FMBH,3,2962,0 APEI,12,75333,-4 CNSL,15,24192,3 Average,11,55582,-0.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $56 million. That figure was $121 million in DEH's case. Kala Pharmaceuticals, Inc. (NASDAQ:KALA) is the most popular stock in this table. On the other hand First Mid Bancshares, Inc. (NASDAQ:FMBH) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks D8 Holdings Corp. (NYSE:DEH) is more popular among hedge funds. Our overall hedge fund sentiment score for DEH is 90. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Unfortunately DEH wasn't nearly as popular as these 20 stocks and hedge funds that were betting on DEH were disappointed as the stock returned 1.6% since the end of the third quarter (through 12/14) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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

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