Is DLB Stock A Buy or Sell?
Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Dolby Laboratories, Inc. (NYSE:DLB)? The smart money sentiment can provide an answer to this question.
Is DLB stock a buy? Prominent investors were getting less bullish. The number of long hedge fund bets decreased by 4 recently. Dolby Laboratories, Inc. (NYSE:DLB) was in 31 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 35. Our calculations also showed that DLB isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 35 hedge funds in our database with DLB holdings at the end of September.
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 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 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.
Gil Simon of SoMa Equity Partners
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. 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. With all of this in mind we're going to take a gander at the new hedge fund action surrounding Dolby Laboratories, Inc. (NYSE:DLB).
Do Hedge Funds Think DLB Is A Good Stock To Buy Now?
Heading into the first quarter of 2021, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards DLB over the last 22 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
Among these funds, SoMa Equity Partners held the most valuable stake in Dolby Laboratories, Inc. (NYSE:DLB), which was worth $213.7 million at the end of the fourth quarter. On the second spot was Polar Capital which amassed $136 million worth of shares. Southpoint Capital Advisors, Renaissance Technologies, and Nantahala Capital 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 Ararat Capital allocated the biggest weight to Dolby Laboratories, Inc. (NYSE:DLB), around 5.87% of its 13F portfolio. SoMa Equity Partners is also relatively very bullish on the stock, dishing out 5.18 percent of its 13F equity portfolio to DLB.
Seeing as Dolby Laboratories, Inc. (NYSE:DLB) has experienced bearish sentiment from the entirety of the hedge funds we track, we can see that there exists a select few fund managers who sold off their entire stakes heading into Q1. Intriguingly, James Woodson Davis's Woodson Capital Management said goodbye to the biggest investment of all the hedgies watched by Insider Monkey, worth close to $19.2 million in stock, and Chet Kapoor's Tenzing Global Investors was right behind this move, as the fund dumped about $5 million worth. These transactions are interesting, as total hedge fund interest fell by 4 funds heading into Q1.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Dolby Laboratories, Inc. (NYSE:DLB) but similarly valued. These stocks are Five Below Inc (NASDAQ:FIVE), Aramark (NYSE:ARMK), Formula One Group (NASDAQ:FWONK), Camden Property Trust (NYSE:CPT), Lincoln National Corporation (NYSE:LNC), Trex Company, Inc. (NYSE:TREX), and Floor & Decor Holdings, Inc. (NYSE:FND). This group of stocks' market values are similar to DLB's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FIVE,42,997077,-2 ARMK,33,1422317,-7 FWONK,42,1724356,2 CPT,26,510604,1 LNC,36,708675,6 TREX,30,314067,4 FND,31,1027190,-11 Average,34.3,957755,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.3 hedge funds with bullish positions and the average amount invested in these stocks was $958 million. That figure was $864 million in DLB's case. Five Below Inc (NASDAQ:FIVE) is the most popular stock in this table. On the other hand Camden Property Trust (NYSE:CPT) is the least popular one with only 26 bullish hedge fund positions. Dolby Laboratories, Inc. (NYSE:DLB) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for DLB is 43.2. 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 negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.2% in 2021 through April 12th and surpassed the market again by 1.5 percentage points. Unfortunately DLB wasn't nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); DLB investors were disappointed as the stock returned 5.4% since the end of December (through 4/12) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 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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