Amid an overall market correction, many stocks that smart money investors were collectively bullish on tanked during the fourth quarter. Among them, Amazon and Netflix ranked among the top 30 picks and both lost more than 25%. Facebook, which was the second most popular stock, lost 20% amid uncertainty regarding the interest rates and tech valuations. Nevertheless, our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the first 2.5 months of 2019 and outperformed the broader market benchmark by 6.6 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Dillard's, Inc. (NYSE:DDS) has experienced a decrease in support from the world's most elite money managers recently. Our calculations also showed that dds isn't among the 30 most popular stocks among hedge funds.
Today there are plenty of tools market participants use to analyze stocks. Two of the best tools are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the top picks of the best investment managers can outclass the market by a healthy margin (see the details here).
We're going to take a look at the new hedge fund action surrounding Dillard's, Inc. (NYSE:DDS).
How are hedge funds trading Dillard's, Inc. (NYSE:DDS)?
At the end of the fourth quarter, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from one quarter earlier. On the other hand, there were a total of 13 hedge funds with a bullish position in DDS a year ago. With hedgies' sentiment swirling, there exists a few key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
More specifically, AQR Capital Management was the largest shareholder of Dillard's, Inc. (NYSE:DDS), with a stake worth $49.1 million reported as of the end of December. Trailing AQR Capital Management was Greenlight Capital, which amassed a stake valued at $15.1 million. Citadel Investment Group, Maverick Capital, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.
Because Dillard's, Inc. (NYSE:DDS) has experienced a decline in interest from the aggregate hedge fund industry, it's safe to say that there lies a certain "tier" of funds that slashed their positions entirely heading into Q3. Interestingly, Louis Bacon's Moore Global Investments dumped the biggest investment of all the hedgies followed by Insider Monkey, worth about $13.4 million in stock. Philippe Laffont's fund, Coatue Management, also sold off its stock, about $0.9 million worth. These transactions are important to note, as total hedge fund interest dropped by 2 funds heading into Q3.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Dillard's, Inc. (NYSE:DDS) but similarly valued. These stocks are Prestige Consumer Healthcare Inc. (NYSE:PBH), Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD), Harsco Corporation (NYSE:HSC), and Plexus Corp. (NASDAQ:PLXS). All of these stocks' market caps resemble DDS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PBH,15,72873,1 IRWD,17,306249,0 HSC,24,112545,2 PLXS,14,71897,2 Average,17.5,140891,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $141 million. That figure was $103 million in DDS's case. Harsco Corporation (NYSE:HSC) is the most popular stock in this table. On the other hand Plexus Corp. (NASDAQ:PLXS) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Dillard's, Inc. (NYSE:DDS) is even less popular than PLXS. Hedge funds dodged a bullet by taking a bearish stance towards DDS. Our calculations showed that the top 15 most popular hedge fund stocks returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately DDS wasn't nearly as popular as these 15 stock (hedge fund sentiment was very bearish); DDS investors were disappointed as the stock returned 10.7% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.