Is DQ A Good Stock To Buy Now?
While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Daqo New Energy Corp (NYSE:DQ).
Is DQ a good stock to buy now? Daqo New Energy Corp (NYSE:DQ) was in 18 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 15. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. DQ has experienced an increase in hedge fund sentiment in recent months. There were 11 hedge funds in our database with DQ positions at the end of the second quarter. Our calculations also showed that DQ isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 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.
Louis Bacon Moore of Moore Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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. Now let's take a glance at the new hedge fund action encompassing Daqo New Energy Corp (NYSE:DQ).
Do Hedge Funds Think DQ Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 64% from the previous quarter. The graph below displays the number of hedge funds with bullish position in DQ over the last 21 quarters. With the smart money's sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
More specifically, Electron Capital Partners was the largest shareholder of Daqo New Energy Corp (NYSE:DQ), with a stake worth $34.9 million reported as of the end of September. Trailing Electron Capital Partners was Citadel Investment Group, which amassed a stake valued at $29.6 million. Millennium Management, Moore Global Investments, and Sandbar 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 Electron Capital Partners allocated the biggest weight to Daqo New Energy Corp (NYSE:DQ), around 2.41% of its 13F portfolio. Sandbar Asset Management is also relatively very bullish on the stock, dishing out 2.12 percent of its 13F equity portfolio to DQ.
As one would reasonably expect, key hedge funds have jumped into Daqo New Energy Corp (NYSE:DQ) headfirst. Moore Global Investments, managed by Louis Bacon, initiated the most valuable position in Daqo New Energy Corp (NYSE:DQ). Moore Global Investments had $9.9 million invested in the company at the end of the quarter. Manoj Jain and Sohit Khurana's Maso Capital also initiated a $2.6 million position during the quarter. The following funds were also among the new DQ investors: Noam Gottesman's GLG Partners, Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners, and Benjamin A. Smith's Laurion Capital Management.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Daqo New Energy Corp (NYSE:DQ) but similarly valued. We will take a look at Comfort Systems USA, Inc. (NYSE:FIX), Fitbit Inc (NYSE:FIT), Nordstrom, Inc. (NYSE:JWN), Veracyte Inc (NASDAQ:VCYT), Cal-Maine Foods Inc (NASDAQ:CALM), KAR Auction Services Inc (NYSE:KAR), and Aurinia Pharmaceuticals Inc (NASDAQ:AUPH). All of these stocks' market caps are similar to DQ's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FIX,24,74498,2 FIT,32,425797,2 JWN,29,126637,1 VCYT,12,26830,3 CALM,24,251802,9 KAR,41,321008,11 AUPH,32,507022,3 Average,27.7,247656,4.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.7 hedge funds with bullish positions and the average amount invested in these stocks was $248 million. That figure was $109 million in DQ's case. KAR Auction Services Inc (NYSE:KAR) is the most popular stock in this table. On the other hand Veracyte Inc (NASDAQ:VCYT) is the least popular one with only 12 bullish hedge fund positions. Daqo New Energy Corp (NYSE:DQ) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for DQ is 50.3. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on DQ as the stock returned 78.6% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.
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