Does Dicks Sporting Goods Inc (NYSE:DKS) represent a good buying opportunity at the moment? Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Dicks Sporting Goods Inc (NYSE:DKS) was in 25 hedge funds' portfolios at the end of September. DKS has experienced an increase in hedge fund interest of late. There were 23 hedge funds in our database with DKS positions at the end of the previous quarter. Our calculations also showed that DKS isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_25717" align="aligncenter" width="440"] Steven Cohen of Point72 Asset Management[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's go over the new hedge fund action encompassing Dicks Sporting Goods Inc (NYSE:DKS).
How are hedge funds trading Dicks Sporting Goods Inc (NYSE:DKS)?
At Q3's end, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 9% from one quarter earlier. By comparison, 21 hedge funds held shares or bullish call options in DKS a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, D E Shaw was the largest shareholder of Dicks Sporting Goods Inc (NYSE:DKS), with a stake worth $80 million reported as of the end of September. Trailing D E Shaw was Citadel Investment Group, which amassed a stake valued at $70.6 million. AQR Capital Management, Tensile Capital, and Point72 Asset Management 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 Tensile Capital allocated the biggest weight to Dicks Sporting Goods Inc (NYSE:DKS), around 6.6% of its portfolio. Bronson Point Partners is also relatively very bullish on the stock, setting aside 1.7 percent of its 13F equity portfolio to DKS.
As industrywide interest jumped, key hedge funds were breaking ground themselves. Marshall Wace, managed by Paul Marshall and Ian Wace, established the most valuable position in Dicks Sporting Goods Inc (NYSE:DKS). Marshall Wace had $20.6 million invested in the company at the end of the quarter. Anand Parekh's Alyeska Investment Group also made a $16.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Louis Bacon's Moore Global Investments, Paul Tudor Jones's Tudor Investment Corp, and David Keidan's Buckingham Capital Management.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Dicks Sporting Goods Inc (NYSE:DKS) but similarly valued. These stocks are Chimera Investment Corporation (NYSE:CIM), Rayonier Inc. (NYSE:RYN), Wintrust Financial Corporation (NASDAQ:WTFC), and ACI Worldwide Inc (NASDAQ:ACIW). This group of stocks' market caps match DKS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CIM,12,132694,-1 RYN,13,317215,-1 WTFC,19,285013,-4 ACIW,21,295588,-2 Average,16.25,257628,-2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $258 million. That figure was $473 million in DKS's case. ACI Worldwide Inc (NASDAQ:ACIW) is the most popular stock in this table. On the other hand Chimera Investment Corporation (NYSE:CIM) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Dicks Sporting Goods Inc (NYSE:DKS) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on DKS as the stock returned 12.3% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.