How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Dover Corporation (NYSE:DOV) and determine whether hedge funds had an edge regarding this stock.
Dover Corporation (NYSE:DOV) was in 40 hedge funds' portfolios at the end of June. The all time high for this statistics is 35. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. DOV investors should be aware of an increase in support from the world's most elite money managers lately. There were 31 hedge funds in our database with DOV holdings at the end of March. Our calculations also showed that DOV isn't among the 30 most popular stocks among hedge funds (click for Q2 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.
In the financial world there are several indicators investors employ to analyze publicly traded companies. Two of the most under-the-radar indicators are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the top picks of the elite hedge fund managers can outperform their index-focused peers by a solid margin (see the details here).
Charles Davidson of Wexford Capital
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 precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world 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. With all of this in mind let's go over the key hedge fund action surrounding Dover Corporation (NYSE:DOV).
Hedge fund activity in Dover Corporation (NYSE:DOV)
Heading into the third quarter of 2020, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 29% from one quarter earlier. By comparison, 32 hedge funds held shares or bullish call options in DOV a year ago. With the smart money's sentiment swirling, there exists a few key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
More specifically, Citadel Investment Group was the largest shareholder of Dover Corporation (NYSE:DOV), with a stake worth $285.8 million reported as of the end of September. Trailing Citadel Investment Group was Adage Capital Management, which amassed a stake valued at $65.6 million. D E Shaw, Scopus Asset Management, and Millennium 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 Wexford Capital allocated the biggest weight to Dover Corporation (NYSE:DOV), around 1.4% of its 13F portfolio. Arosa Capital Management is also relatively very bullish on the stock, designating 1.26 percent of its 13F equity portfolio to DOV.
As one would reasonably expect, some big names have jumped into Dover Corporation (NYSE:DOV) headfirst. Alyeska Investment Group, managed by Anand Parekh, created the largest position in Dover Corporation (NYSE:DOV). Alyeska Investment Group had $13.1 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital also initiated a $10.7 million position during the quarter. The other funds with brand new DOV positions are Charles Davidson and Joseph Jacobs's Wexford Capital, Doron Breen and Mori Arkin's Sphera Global Healthcare Fund, and Michael Gelband's ExodusPoint Capital.
Let's go over hedge fund activity in other stocks similar to Dover Corporation (NYSE:DOV). We will take a look at Rollins, Inc. (NYSE:ROL), International Paper Company (NYSE:IP), The Hartford Financial Services Group Inc (NYSE:HIG), Tyler Technologies, Inc. (NYSE:TYL), ONEOK, Inc. (NYSE:OKE), Pembina Pipeline Corp (NYSE:PBA), and Fifth Third Bancorp (NASDAQ:FITB). This group of stocks' market caps resemble DOV's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ROL,29,577262,4 IP,29,238219,0 HIG,39,917896,2 TYL,36,533929,6 OKE,25,117132,0 PBA,10,89252,-5 FITB,32,354887,2 Average,28.6,404082,1.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.6 hedge funds with bullish positions and the average amount invested in these stocks was $404 million. That figure was $684 million in DOV's case. The Hartford Financial Services Group Inc (NYSE:HIG) is the most popular stock in this table. On the other hand Pembina Pipeline Corp (NYSE:PBA) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Dover Corporation (NYSE:DOV) is more popular among hedge funds. Our overall hedge fund sentiment score for DOV is 90. 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 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 33% in 2020 through the end of August and still managed to beat the market by 23.2 percentage points. Hedge funds were also right about betting on DOV, though not to the same extent, as the stock returned 14.3% since the end of June and outperformed the market as well.
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Disclosure: None. This article was originally published at Insider Monkey.