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Is Discovery Inc. (DISCA) A Good Stock To Buy?

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At Insider Monkey, we pore over the filings of nearly 873 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of June 30th. In this article, we will use that wealth of knowledge to determine whether or not Discovery Inc. (NASDAQ:DISCA) makes for a good investment right now.

Is Discovery Inc. (NASDAQ:DISCA) a good stock to buy? Hedge funds were getting less bullish. The number of bullish hedge fund bets shrunk by 4 recently. Discovery Inc. (NASDAQ:DISCA) was in 44 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 48. Our calculations also showed that DISCA isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 48 hedge funds in our database with DISCA positions at the end of the first quarter.

In the 21st century investor’s toolkit there are a large number of formulas stock market investors have at their disposal to size up stocks. A duo of the most under-the-radar formulas are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the top picks of the top investment managers can outperform the S&P 500 by a superb margin (see the details here). Also, our monthly newsletter's portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website .

Bill Miller
Bill Miller

Bill Miller of Miller Value Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV 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 we're going to take a glance at the recent hedge fund action encompassing Discovery Inc. (NASDAQ:DISCA).

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

At the end of June, a total of 44 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards DISCA over the last 24 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is DISCA A Good Stock To Buy?
Is DISCA A Good Stock To Buy?

More specifically, Two Sigma Advisors was the largest shareholder of Discovery Inc. (NASDAQ:DISCA), with a stake worth $81.9 million reported as of the end of June. Trailing Two Sigma Advisors was Millennium Management, which amassed a stake valued at $64.9 million. Brahman Capital, Renaissance Technologies, and Citadel Investment Group 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 Quaker Capital Investments allocated the biggest weight to Discovery Inc. (NASDAQ:DISCA), around 11.12% of its 13F portfolio. Brahman Capital is also relatively very bullish on the stock, designating 3.92 percent of its 13F equity portfolio to DISCA.

Since Discovery Inc. (NASDAQ:DISCA) has experienced a decline in interest from the entirety of the hedge funds we track, logic holds that there is a sect of money managers that decided to sell off their full holdings heading into Q3. At the top of the heap, Bill Miller's Miller Value Partners said goodbye to the biggest position of the 750 funds tracked by Insider Monkey, comprising an estimated $38.8 million in stock, and David Tepper's Appaloosa Management LP was right behind this move, as the fund cut about $20.6 million worth. These moves are important to note, as total hedge fund interest dropped by 4 funds heading into Q3.

Let's now take a look at hedge fund activity in other stocks similar to Discovery Inc. (NASDAQ:DISCA). These stocks are Enel Americas S.A. (NYSE:ENIA), argenx SE (NASDAQ:ARGX), BioMarin Pharmaceutical Inc. (NASDAQ:BMRN), Liberty Global plc (NASDAQ:LBTYA), News Corp (NASDAQ:NWSA), James Hardie Industries plc (NYSE:JHX), and GameStop Corp. (NYSE:GME). This group of stocks' market caps are closest to DISCA's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ENIA,7,47642,-4 ARGX,27,1454196,0 BMRN,44,1324516,1 LBTYA,30,806409,-5 NWSA,37,1087728,2 JHX,4,13518,0 GME,18,247901,5 Average,23.9,711701,-0.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.9 hedge funds with bullish positions and the average amount invested in these stocks was $712 million. That figure was $588 million in DISCA's case. BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) is the most popular stock in this table. On the other hand James Hardie Industries plc (NYSE:JHX) is the least popular one with only 4 bullish hedge fund positions. Discovery Inc. (NASDAQ:DISCA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DISCA is 78.5. 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. 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 22.9% in 2021 through October 1st and beat the market again by 5.6 percentage points. Unfortunately DISCA wasn't nearly as popular as these 5 stocks and hedge funds that were betting on DISCA were disappointed as the stock returned -16.1% since the end of June (through 10/1) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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