Dycom Industries, Inc. (DY): Hedge Fund Sentiment Is Still At All Time Low
The financial regulations require hedge funds and wealthy investors that crossed the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on June 28th. We at Insider Monkey have made an extensive database of nearly 750 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded Dycom Industries, Inc. (NYSE:DY) based on those filings.
Dycom Industries, Inc. (NYSE:DY) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 17 hedge funds' portfolios at the end of June. At the end of this article we will also compare DY to other stocks including Diodes Incorporated (NASDAQ:DIOD), Scientific Games Corporation (NASDAQ:SGMS), and Compass Minerals International, Inc. (NYSE:CMP) to get a better sense of its popularity.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
[caption id="attachment_673968" align="aligncenter" width="473"]
David Keidan of Buckingham Capital[/caption]
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's review the recent hedge fund action surrounding Dycom Industries, Inc. (NYSE:DY).
Hedge fund activity in Dycom Industries, Inc. (NYSE:DY)
At the end of the second quarter, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards DY over the last 16 quarters. With hedge funds' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Dycom Industries, Inc. (NYSE:DY), which was worth $20.8 million at the end of the second quarter. On the second spot was ACK Asset Management which amassed $16.7 million worth of shares. Moreover, Shellback Capital, Two Sigma Advisors, and Buckingham Capital Management were also bullish on Dycom Industries, Inc. (NYSE:DY), allocating a large percentage of their portfolios to this stock.
Because Dycom Industries, Inc. (NYSE:DY) has faced bearish sentiment from the smart money, logic holds that there lies a certain "tier" of hedgies that slashed their positions entirely heading into Q3. Intriguingly, Jerome L. Simon's Lonestar Capital Management dropped the biggest investment of all the hedgies monitored by Insider Monkey, totaling close to $4.6 million in stock. David Brown's fund, Hawk Ridge Management, also sold off its stock, about $4.1 million worth. These moves are intriguing to say the least, 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). These stocks are Diodes Incorporated (NASDAQ:DIOD), Scientific Games Corporation (NASDAQ:SGMS), Compass Minerals International, Inc. (NYSE:CMP), and FGL Holdings (NYSE:FG). This group of stocks' market valuations are closest to DY's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DIOD,18,114161,-1 SGMS,27,578766,-1 CMP,16,81209,3 FG,24,200982,1 Average,21.25,243780,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $244 million. That figure was $68 million in DY's case. Scientific Games Corporation (NASDAQ:SGMS) is the most popular stock in this table. On the other hand Compass Minerals International, Inc. (NYSE:CMP) is the least popular one with only 16 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. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately DY wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); DY investors were disappointed as the stock returned -13.3% during the third quarter 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 in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
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