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Demand Media Inc (DMD): Insiders Are Dumping, Should You?

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Demand Media Inc (NYSE:DMD) investors should be aware of a decrease in enthusiasm from smart money of late.

If you’d ask most market participants, hedge funds are viewed as slow, old investment tools of the past. While there are over 8000 funds trading today, we look at the upper echelon of this club, around 450 funds. It is widely believed that this group has its hands on most of all hedge funds’ total asset base, and by monitoring their best picks, we have found a number of investment strategies that have historically outperformed the market. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points annually for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have beaten the S&P 500 index by 24 percentage points in 7 months (explore the details and some picks here).

Demand Media Inc (NYSE:DMD)

Equally as key, bullish insider trading activity is another way to break down the investments you’re interested in. Obviously, there are a variety of motivations for a bullish insider to sell shares of his or her company, but only one, very obvious reason why they would behave bullishly. Various academic studies have demonstrated the useful potential of this strategy if shareholders understand what to do (learn more here).

With all of this in mind, it’s important to take a peek at the key action surrounding Demand Media Inc (NYSE:DMD).

What have hedge funds been doing with Demand Media Inc (NYSE:DMD)?

Heading into 2013, a total of 8 of the hedge funds we track were bullish in this stock, a change of -20% from the third quarter. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were boosting their holdings substantially.

When looking at the hedgies we track, SAC Capital Advisors, managed by Steven Cohen, holds the biggest position in Demand Media Inc (NYSE:DMD). SAC Capital Advisors has a $10.7 million position in the stock, comprising 0.1% of its 13F portfolio. Coming in second is Joseph A. Jolson of Harvest Capital Strategies, with a $8 million position; 1.5% of its 13F portfolio is allocated to the stock. Remaining hedgies that are bullish include Ken Griffin’s Citadel Investment Group, Israel Englander’s Millennium Management and D. E. Shaw’s D E Shaw.

Seeing as Demand Media Inc (NYSE:DMD) has experienced declining sentiment from the smart money, we can see that there were a few hedgies that elected to cut their full holdings in Q4. Interestingly, Jim Simons’s Renaissance Technologies dropped the largest position of the 450+ funds we track, totaling an estimated $2 million in stock., and Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital was right behind this move, as the fund cut about $0.3 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 2 funds in Q4.

How are insiders trading Demand Media Inc (NYSE:DMD)?

Bullish insider trading is at its handiest when the company we’re looking at has experienced transactions within the past six months. Over the last half-year time frame, Demand Media Inc (NYSE:DMD) has seen zero unique insiders purchasing, and 2 insider sales (see the details of insider trades here).

Let’s also take a look at hedge fund and insider activity in other stocks similar to Demand Media Inc (NYSE:DMD). These stocks are DealerTrack Technologies Inc (NASDAQ:TRAK), Angie’s List Inc (NASDAQ:ANGI), Digital River, Inc. (NASDAQ:DRIV), InterNAP Network Services (NASDAQ:INAP), and VirnetX Holding Corporation (NYSEAMEX:VHC). This group of stocks are the members of the internet software & services industry and their market caps are closest to DMD’s market cap.

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