Is Diana Shipping Inc. (NYSE:DSX) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is Diana Shipping Inc. (NYSE:DSX) undervalued? The best stock pickers are getting more optimistic. The number of bullish hedge fund bets improved by 1 recently. Our calculations also showed that DSX isn't among the 30 most popular stocks among hedge funds (see the video below). DSX was in 9 hedge funds' portfolios at the end of June. There were 8 hedge funds in our database with DSX holdings at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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. 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. We're going to take a look at the fresh hedge fund action regarding Diana Shipping Inc. (NYSE:DSX).
How have hedgies been trading Diana Shipping Inc. (NYSE:DSX)?
Heading into the third quarter of 2019, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in DSX over the last 16 quarters. With hedgies' capital changing hands, there exists an "upper tier" of notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
The largest stake in Diana Shipping Inc. (NYSE:DSX) was held by Kopernik Global Investors, which reported holding $16.3 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $4.2 million position. Other investors bullish on the company included 683 Capital Partners, Royce & Associates, and 12 West Capital Management.
As aggregate interest increased, key hedge funds have been driving this bullishness. Citadel Investment Group, managed by Ken Griffin, initiated the most valuable position in Diana Shipping Inc. (NYSE:DSX). Citadel Investment Group had $0 million invested in the company at the end of the quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Diana Shipping Inc. (NYSE:DSX) but similarly valued. These stocks are Care.com Inc (NYSE:CRCM), MiX Telematics Limited (NYSE:MIXT), Oppenheimer Holdings Inc. (NYSE:OPY), and Greenlane Holdings, Inc. (NASDAQ:GNLN). This group of stocks' market valuations are similar to DSX's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CRCM,21,113594,3 MIXT,8,46948,0 OPY,9,36092,0 GNLN,6,21145,6 Average,11,54445,2.25 [/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 $54 million. That figure was $23 million in DSX's case. Care.com Inc (NYSE:CRCM) is the most popular stock in this table. On the other hand Greenlane Holdings, Inc. (NASDAQ:GNLN) is the least popular one with only 6 bullish hedge fund positions. Diana Shipping Inc. (NYSE:DSX) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on DSX, though not to the same extent, as the stock returned 2.1% during the third quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.