Is DSSI A Good Stock To Buy Now?
Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the third quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Diamond S Shipping Inc. (NYSE:DSSI) based on that data.
Is DSSI a good stock to buy now? Diamond S Shipping Inc. (NYSE:DSSI) was in 15 hedge funds' portfolios at the end of September. The all time high for this statistic is 18. DSSI has experienced a decrease in activity from the world's largest hedge funds in recent months. There were 16 hedge funds in our database with DSSI holdings at the end of June. Our calculations also showed that DSSI 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.
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 S&P 500 ETFs by more than 66 percentage points since March 2017 (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.
Nathaniel August of Mangrove Partners
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. With all of this in mind we're going to take a peek at the latest hedge fund action encompassing Diamond S Shipping Inc. (NYSE:DSSI).
Do Hedge Funds Think DSSI Is A Good Stock To Buy Now?
At Q3's end, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in DSSI over the last 21 quarters. With the smart money's capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
More specifically, Fairfax Financial Holdings was the largest shareholder of Diamond S Shipping Inc. (NYSE:DSSI), with a stake worth $7.1 million reported as of the end of September. Trailing Fairfax Financial Holdings was Mangrove Partners, which amassed a stake valued at $5.7 million. Arrowstreet Capital, 683 Capital Partners, and GLG Partners 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 Mangrove Partners allocated the biggest weight to Diamond S Shipping Inc. (NYSE:DSSI), around 0.73% of its 13F portfolio. Fairfax Financial Holdings is also relatively very bullish on the stock, setting aside 0.4 percent of its 13F equity portfolio to DSSI.
Judging by the fact that Diamond S Shipping Inc. (NYSE:DSSI) has experienced declining sentiment from the entirety of the hedge funds we track, it's safe to say that there lies a certain "tier" of hedge funds that elected to cut their full holdings in the third quarter. At the top of the heap, Greg Eisner's Engineers Gate Manager said goodbye to the largest stake of the "upper crust" of funds followed by Insider Monkey, worth close to $0.7 million in stock. John Overdeck and David Siegel's fund, Two Sigma Advisors, also cut its stock, about $0.4 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 1 funds in the third quarter.
Let's now take a look at hedge fund activity in other stocks similar to Diamond S Shipping Inc. (NYSE:DSSI). These stocks are EZCORP Inc (NASDAQ:EZPW), Surface Oncology, Inc. (NASDAQ:SURF), Clearfield, Inc. (NASDAQ:CLFD), Independent Bank Corporation (NASDAQ:IBCP), Xeris Pharmaceuticals, Inc. (NASDAQ:XERS), Guaranty Bancshares, Inc. (NASDAQ:GNTY), and Anavex Life Sciences Corp. (NASDAQ:AVXL). This group of stocks' market values are similar to DSSI's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EZPW,15,56333,0 SURF,13,56704,2 CLFD,3,13830,-1 IBCP,13,24898,-1 XERS,13,49164,-7 GNTY,2,3343,0 AVXL,3,3308,-2 Average,8.9,29654,-1.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.9 hedge funds with bullish positions and the average amount invested in these stocks was $30 million. That figure was $20 million in DSSI's case. EZCORP Inc (NASDAQ:EZPW) is the most popular stock in this table. On the other hand Guaranty Bancshares, Inc. (NASDAQ:GNTY) is the least popular one with only 2 bullish hedge fund positions. Diamond S Shipping Inc. (NYSE:DSSI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DSSI is 79. 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 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 beat the market again by 15.8 percentage points. Unfortunately DSSI wasn't nearly as popular as these 20 stocks and hedge funds that were betting on DSSI were disappointed as the stock returned 4.9% since the end of September (through 12/14) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.
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