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Hedge Funds Aren’t Done Buying Domino’s Pizza, Inc. (DPZ)

Debasis Saha

In this article we will take a look at whether hedge funds think Domino's Pizza, Inc. (NYSE:DPZ) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Domino's Pizza, Inc. (NYSE:DPZ) investors should be aware of an increase in hedge fund interest recently. DPZ was in 45 hedge funds' portfolios at the end of March. There were 31 hedge funds in our database with DPZ positions at the end of the previous quarter. Our calculations also showed that DPZ isn't among the 30 most popular stocks among hedge funds (click for Q1 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 44 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_26335" align="aligncenter" width="400"] Ken Fisher of Fisher Asset Management[/caption]

Ken Fisher FISHER ASSET MANAGEMENT

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this successful trader’s “corona catalyst plays“. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we're going to analyze the latest hedge fund action encompassing Domino's Pizza, Inc. (NYSE:DPZ).

How have hedgies been trading Domino's Pizza, Inc. (NYSE:DPZ)?

At the end of the first quarter, a total of 45 of the hedge funds tracked by Insider Monkey were long this stock, a change of 45% from the fourth quarter of 2019. On the other hand, there were a total of 32 hedge funds with a bullish position in DPZ a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is DPZ A Good Stock To Buy?

Among these funds, Renaissance Technologies held the most valuable stake in Domino's Pizza, Inc. (NYSE:DPZ), which was worth $642.2 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $222.3 million worth of shares. Melvin Capital Management, Citadel Investment Group, and Steadfast Capital 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 Crestwood Capital Management allocated the biggest weight to Domino's Pizza, Inc. (NYSE:DPZ), around 6.89% of its 13F portfolio. Junto Capital Management is also relatively very bullish on the stock, earmarking 3.43 percent of its 13F equity portfolio to DPZ.

Consequently, some big names were breaking ground themselves. Melvin Capital Management, managed by Gabriel Plotkin, assembled the most valuable position in Domino's Pizza, Inc. (NYSE:DPZ). Melvin Capital Management had $210.6 million invested in the company at the end of the quarter. James Parsons's Junto Capital Management also initiated a $47.6 million position during the quarter. The other funds with new positions in the stock are Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Jack Woodruff's Candlestick Capital Management, and Ben Gambill's Tiger Eye Capital.

Let's check out hedge fund activity in other stocks similar to Domino's Pizza, Inc. (NYSE:DPZ). These stocks are Weyerhaeuser Co. (NYSE:WY), Hartford Financial Services Group Inc (NYSE:HIG), CBRE Group, Inc. (NYSE:CBRE), and MarketAxess Holdings Inc. (NASDAQ:MKTX). This group of stocks' market caps are closest to DPZ's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WY,35,195583,5 HIG,37,708354,3 CBRE,33,1142791,3 MKTX,27,711821,0 Average,33,689637,2.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $690 million. That figure was $1760 million in DPZ's case. Hartford Financial Services Group Inc (NYSE:HIG) is the most popular stock in this table. On the other hand MarketAxess Holdings Inc. (NASDAQ:MKTX) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks Domino's Pizza, Inc. (NYSE:DPZ) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 7.9% in 2020 through May 22nd but still managed to beat the market by 15.6 percentage points. Hedge funds were also right about betting on DPZ, though not to the same extent, as the stock returned 14.8% in Q2 (through May 22nd) and outperformed the market as well.

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

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