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Hedge Funds Are Buying DXC Technology Company (DXC)

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With the second-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the third quarter of 2021. One of these stocks was DXC Technology Company (NYSE:DXC).

Is DXC Technology Company (NYSE:DXC) a buy right now? Investors who are in the know were getting more optimistic. The number of long hedge fund positions increased by 2 recently. DXC Technology Company (NYSE:DXC) was in 30 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 60. Our calculations also showed that DXC isn't among the 30 most popular stocks among hedge funds (click 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' 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 79 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.

Gavin Saitowitz of Prelude Capital
Gavin Saitowitz of Prelude Capital

Gavin Saitowitz of Prelude Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now we're going to view the fresh hedge fund action surrounding DXC Technology Company (NYSE:DXC).

Do Hedge Funds Think DXC Is A Good Stock To Buy Now?

At Q2's end, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from the first quarter of 2020. On the other hand, there were a total of 40 hedge funds with a bullish position in DXC a year ago. With hedgies' sentiment swirling, there exists a few key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

The largest stake in DXC Technology Company (NYSE:DXC) was held by Glenview Capital, which reported holding $280.9 million worth of stock at the end of June. It was followed by Miller Value Partners with a $177.3 million position. Other investors bullish on the company included Arrowstreet Capital, D E Shaw, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Verdad Advisers allocated the biggest weight to DXC Technology Company (NYSE:DXC), around 9.17% of its 13F portfolio. Glenview Capital is also relatively very bullish on the stock, earmarking 4.71 percent of its 13F equity portfolio to DXC.

Now, some big names have jumped into DXC Technology Company (NYSE:DXC) headfirst. Prelude Capital (previously Springbok Capital), managed by Gavin Saitowitz and Cisco J. del Valle, created the most valuable call position in DXC Technology Company (NYSE:DXC). Prelude Capital (previously Springbok Capital) had $3.6 million invested in the company at the end of the quarter. Peter A. Wright's P.A.W. CAPITAL PARTNERS also made a $2.3 million investment in the stock during the quarter. The other funds with brand new DXC positions are Gavin Saitowitz and Cisco J. del Valle's Prelude Capital (previously Springbok Capital), Ira Unschuld's Brant Point Investment Management, and Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as DXC Technology Company (NYSE:DXC) but similarly valued. We will take a look at Formula One Group (NASDAQ:FWONA), Amdocs Limited (NASDAQ:DOX), NRG Energy Inc (NYSE:NRG), MKS Instruments, Inc. (NASDAQ:MKSI), AGCO Corporation (NYSE:AGCO), Globe Life Inc. (NYSE:GL), and Playtika Holding Corp. (NASDAQ:PLTK). This group of stocks' market caps match DXC's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FWONA,22,300534,3 DOX,29,796947,-3 NRG,33,1905089,-2 MKSI,26,423293,4 AGCO,38,429223,2 GL,28,795034,-5 PLTK,26,463637,5 Average,28.9,730537,0.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.9 hedge funds with bullish positions and the average amount invested in these stocks was $731 million. That figure was $851 million in DXC's case. AGCO Corporation (NYSE:AGCO) is the most popular stock in this table. On the other hand Formula One Group (NASDAQ:FWONA) is the least popular one with only 22 bullish hedge fund positions. DXC Technology Company (NYSE:DXC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DXC is 47. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24.9% in 2021 through October 15th and beat the market again by 4.5 percentage points. Unfortunately DXC wasn't nearly as popular as these 5 stocks and hedge funds that were betting on DXC were disappointed as the stock returned -10.3% since the end of June (through 10/15) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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