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Is Dicks Sporting Goods Inc (DKS) A Good Stock To Buy?

Asma UL Husna

As we already know from media reports and hedge fund investor letters, many hedge funds lost money in fourth quarter, blaming macroeconomic conditions and unpredictable events that hit several sectors, with technology among them. Nevertheless, most investors decided to stick to their bullish theses and recouped their losses by the end of the first quarter. We get to see hedge funds' thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Dicks Sporting Goods Inc (NYSE:DKS).

Is Dicks Sporting Goods Inc (NYSE:DKS) ready to rally soon? Investors who are in the know are reducing their bets on the stock. The number of long hedge fund positions decreased by 2 recently. Our calculations also showed that DKS isn't among the 30 most popular stocks among hedge funds. DKS was in 20 hedge funds' portfolios at the end of March. There were 22 hedge funds in our database with DKS holdings at the end of the previous quarter.

In the eyes of most market participants, hedge funds are assumed to be slow, old investment tools of the past. While there are over 8000 funds in operation today, Our experts hone in on the bigwigs of this group, around 750 funds. Most estimates calculate that this group of people watch over the lion's share of all hedge funds' total capital, and by tracking their top equity investments, Insider Monkey has unearthed several investment strategies that have historically outperformed the broader indices. Insider Monkey's flagship hedge fund strategy outpaced the S&P 500 index by around 5 percentage points per year since its inception in May 2014 through the end of May. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 30.9% since February 2017 (through May 30th) even though the market was up nearly 24% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 11.9% in less than a couple of weeks whereas our long picks outperformed the market by 2 percentage points in this volatile 2 week period.

Michael Platt BlueCrest Capital

Let's take a glance at the recent hedge fund action surrounding Dicks Sporting Goods Inc (NYSE:DKS).

Hedge fund activity in Dicks Sporting Goods Inc (NYSE:DKS)

At the end of the first quarter, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the previous quarter. The graph below displays the number of hedge funds with bullish position in DKS over the last 15 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

DKS_june2019

Among these funds, AQR Capital Management held the most valuable stake in Dicks Sporting Goods Inc (NYSE:DKS), which was worth $120.4 million at the end of the first quarter. On the second spot was D E Shaw which amassed $45.5 million worth of shares. Moreover, Tensile Capital, Balyasny Asset Management, and Arrowstreet Capital were also bullish on Dicks Sporting Goods Inc (NYSE:DKS), allocating a large percentage of their portfolios to this stock.

Seeing as Dicks Sporting Goods Inc (NYSE:DKS) has witnessed bearish sentiment from hedge fund managers, we can see that there exists a select few hedgies who sold off their full holdings by the end of the third quarter. It's worth mentioning that Chuck Royce's Royce & Associates sold off the largest investment of the 700 funds tracked by Insider Monkey, valued at close to $2.4 million in call options, and Sander Gerber's Hudson Bay Capital Management was right behind this move, as the fund sold off about $1.2 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 2 funds by the end of the third quarter.

Let's now take a look at 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 Black Stone Minerals LP (NYSE:BSM), Eldorado Resorts Inc (NYSE:ERI), TreeHouse Foods Inc. (NYSE:THS), and Spirit Airlines Incorporated (NYSE:SAVE). This group of stocks' market valuations match DKS's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BSM,5,9741,0 ERI,31,549919,2 THS,23,230182,4 SAVE,34,381981,4 Average,23.25,292956,2.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $293 million. That figure was $303 million in DKS's case. Spirit Airlines Incorporated (NYSE:SAVE) is the most popular stock in this table. On the other hand Black Stone Minerals LP (NYSE:BSM) is the least popular one with only 5 bullish hedge fund positions. Dicks Sporting Goods Inc (NYSE:DKS) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately DKS wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); DKS investors were disappointed as the stock returned -7% during the same time period 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 13 of these stocks already outperformed the market so far in Q2.

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

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