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In this article you are going to find out whether hedge funds think Dycom Industries, Inc. (NYSE:DY) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Is DY a good stock to buy now? Hedge fund interest in Dycom Industries, Inc. (NYSE:DY) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that DY 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). The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Sonos, Inc. (NASDAQ:SONO), O-I Glass, Inc. (NYSE:OI), and Washington Real Estate Investment Trust (NYSE:WRE) to gather more data points.
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.
Minhua Zhang of Weld Capital Management
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 let's take a gander at the new hedge fund action surrounding Dycom Industries, Inc. (NYSE:DY).
Do Hedge Funds Think DY Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. By comparison, 19 hedge funds held shares or bullish call options in DY a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, ACK Asset Management was the largest shareholder of Dycom Industries, Inc. (NYSE:DY), with a stake worth $20.3 million reported as of the end of September. Trailing ACK Asset Management was Citadel Investment Group, which amassed a stake valued at $14.8 million. Two Sigma Advisors, Balyasny Asset Management, and Leonard Green & 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 ACK Asset Management allocated the biggest weight to Dycom Industries, Inc. (NYSE:DY), around 10.44% of its 13F portfolio. Manatuck Hill Partners is also relatively very bullish on the stock, earmarking 1.33 percent of its 13F equity portfolio to DY.
Due to the fact that Dycom Industries, Inc. (NYSE:DY) has experienced falling interest from hedge fund managers, it's safe to say that there were a few money managers that decided to sell off their entire stakes last quarter. Interestingly, Marc Majzner's Clearline Capital said goodbye to the largest stake of the 750 funds tracked by Insider Monkey, totaling about $1.5 million in stock, and Benjamin A. Smith's Laurion Capital Management was right behind this move, as the fund dumped about $1.1 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks similar to Dycom Industries, Inc. (NYSE:DY). We will take a look at Sonos, Inc. (NASDAQ:SONO), O-I Glass, Inc. (NYSE:OI), Washington Real Estate Investment Trust (NYSE:WRE), Revance Therapeutics Inc (NASDAQ:RVNC), Cavco Industries, Inc. (NASDAQ:CVCO), Progress Software Corporation (NASDAQ:PRGS), and Prelude Therapeutics Incorporated (NASDAQ:PRLD). This group of stocks' market values are similar to DY's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SONO,32,336456,-3 OI,27,254546,2 WRE,13,71057,5 RVNC,13,118943,-1 CVCO,22,160263,-1 PRGS,21,195226,-6 PRLD,15,839468,15 Average,20.4,282280,1.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.4 hedge funds with bullish positions and the average amount invested in these stocks was $282 million. That figure was $68 million in DY's case. Sonos, Inc. (NASDAQ:SONO) is the most popular stock in this table. On the other hand Washington Real Estate Investment Trust (NYSE:WRE) is the least popular one with only 13 bullish hedge fund positions. Dycom Industries, Inc. (NYSE:DY) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for DY is 27. 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 DY as the stock returned 42.6% 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.