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Hedge Fund Darlings vs. Dicks Sporting Goods Inc (DKS) In 2019

Reymerlyn Martin

We are still in an overall bull market and many stocks that smart money investors were piling into surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained more than 57% each. Hedge funds' top 3 stock picks returned 45.7% last year and beat the S&P 500 ETFs by more than 14 percentage points. That's a big deal. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Dicks Sporting Goods Inc (NYSE:DKS) was in 25 hedge funds' portfolios at the end of the third quarter of 2019. DKS has experienced an increase in enthusiasm from smart money in recent months. There were 23 hedge funds in our database with DKS holdings at the end of the previous quarter. Our calculations also showed that DKS isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_26794" align="aligncenter" width="359"] Paul Tudor Jones of Tudor Investment Corp[/caption]

TUDOR INVESTMENT CORP

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. With all of this in mind let's take a peek at the new hedge fund action surrounding Dicks Sporting Goods Inc (NYSE:DKS).

How are hedge funds trading Dicks Sporting Goods Inc (NYSE:DKS)?

Heading into the fourth quarter of 2019, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards DKS over the last 17 quarters. With hedge funds' capital changing hands, there exists a select group of notable hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

More specifically, D E Shaw was the largest shareholder of Dicks Sporting Goods Inc (NYSE:DKS), with a stake worth $80 million reported as of the end of September. Trailing D E Shaw was Citadel Investment Group, which amassed a stake valued at $70.6 million. AQR Capital Management, Tensile Capital, and Point72 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 Tensile Capital allocated the biggest weight to Dicks Sporting Goods Inc (NYSE:DKS), around 6.6% of its 13F portfolio. Bronson Point Partners is also relatively very bullish on the stock, designating 1.7 percent of its 13F equity portfolio to DKS.

As aggregate interest increased, specific money managers have jumped into Dicks Sporting Goods Inc (NYSE:DKS) headfirst. Marshall Wace, managed by Paul Marshall and Ian Wace, initiated the most outsized position in Dicks Sporting Goods Inc (NYSE:DKS). Marshall Wace had $20.6 million invested in the company at the end of the quarter. Anand Parekh's Alyeska Investment Group also made a $16.1 million investment in the stock during the quarter. The following funds were also among the new DKS investors: Louis Bacon's Moore Global Investments, Paul Tudor Jones's Tudor Investment Corp, and David Keidan's Buckingham Capital Management.

Let's check out hedge fund activity in other stocks similar to Dicks Sporting Goods Inc (NYSE:DKS). These stocks are Chimera Investment Corporation (NYSE:CIM), Rayonier Inc. (NYSE:RYN), Wintrust Financial Corporation (NASDAQ:WTFC), and ACI Worldwide Inc (NASDAQ:ACIW). This group of stocks' market valuations are closest to DKS's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CIM,12,132694,-1 RYN,13,317215,-1 WTFC,19,285013,-4 ACIW,21,295588,-2 Average,16.25,257628,-2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $258 million. That figure was $473 million in DKS's case. ACI Worldwide Inc (NASDAQ:ACIW) is the most popular stock in this table. On the other hand Chimera Investment Corporation (NYSE:CIM) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Dicks Sporting Goods Inc (NYSE:DKS) is more popular among hedge funds. 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 10.1 percentage points. Hedge funds were also right about betting on DKS as the stock returned 63.2% in 2019 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

Disclosure: None. This article was originally published at Insider Monkey.

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