Is DPZ Stock A Buy or Sell?
In this article we will analyze whether Domino's Pizza, Inc. (NYSE:DPZ) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.
Is DPZ stock a buy? Prominent investors were betting on the stock. The number of bullish hedge fund bets moved up by 2 in recent months. Domino's Pizza, Inc. (NYSE:DPZ) was in 37 hedge funds' portfolios at the end of December. The all time high for this statistic is 47. Our calculations also showed that DPZ isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 35 hedge funds in our database with DPZ positions at the end of the third quarter.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here).
Peter Rathjens of Arrowstreet Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 10 best battery stocks to buy 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. Keeping this in mind we're going to take a glance at the recent hedge fund action encompassing Domino's Pizza, Inc. (NYSE:DPZ).
Do Hedge Funds Think DPZ Is A Good Stock To Buy Now?
At the end of the fourth quarter, a total of 37 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from the previous quarter. The graph below displays the number of hedge funds with bullish position in DPZ over the last 22 quarters. With the smart money's sentiment swirling, there exists a few key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, holds the biggest position in Domino's Pizza, Inc. (NYSE:DPZ). Renaissance Technologies has a $465.8 million position in the stock, comprising 0.5% of its 13F portfolio. The second most bullish fund manager is Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, which holds a $187.8 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Some other peers that are bullish comprise Ken Fisher's Fisher Asset Management, Cliff Asness's AQR Capital Management and Richard Chilton's Chilton Investment Company. In terms of the portfolio weights assigned to each position Crestwood Capital Management allocated the biggest weight to Domino's Pizza, Inc. (NYSE:DPZ), around 3.09% of its 13F portfolio. Chilton Investment Company is also relatively very bullish on the stock, designating 2.52 percent of its 13F equity portfolio to DPZ.
As one would reasonably expect, some big names were breaking ground themselves. Schonfeld Strategic Advisors, managed by Ryan Tolkin (CIO), assembled the most valuable position in Domino's Pizza, Inc. (NYSE:DPZ). Schonfeld Strategic Advisors had $21.6 million invested in the company at the end of the quarter. Donald Sussman's Paloma Partners also made a $4.1 million investment in the stock during the quarter. The following funds were also among the new DPZ investors: Qing Li's Sciencast Management, Thomas Lee's Lee Capital Management, and Brad Dunkley and Blair Levinsky's Waratah Capital Advisors.
Let's now take a look at hedge fund activity in other stocks similar to Domino's Pizza, Inc. (NYSE:DPZ). These stocks are Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY), Suzano S.A. (NYSE:SUZ), IDEX Corporation (NYSE:IEX), Extra Space Storage, Inc. (NYSE:EXR), Leidos Holdings Inc (NYSE:LDOS), Pool Corporation (NASDAQ:POOL), and Telefonica Brasil SA (NYSE:VIV). This group of stocks' market valuations are similar to DPZ's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALNY,39,756924,4 SUZ,6,48722,2 IEX,29,738242,3 EXR,29,298792,2 LDOS,14,92699,-11 POOL,33,870840,-3 VIV,8,99404,-5 Average,22.6,415089,-1.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.6 hedge funds with bullish positions and the average amount invested in these stocks was $415 million. That figure was $1222 million in DPZ's case. Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY) is the most popular stock in this table. On the other hand Suzano S.A. (NYSE:SUZ) is the least popular one with only 6 bullish hedge fund positions. Domino's Pizza, Inc. (NYSE:DPZ) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DPZ is 77.6. 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 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 7.9% in 2021 through April 1st and beat the market again by 0.4 percentage points. Unfortunately DPZ wasn't nearly as popular as these 30 stocks and hedge funds that were betting on DPZ were disappointed as the stock returned -2.4% since the end of December (through 4/1) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 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.
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