Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 5.2% in the 12 months ending October 30, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, hedge funds’ 30 preferred S&P 500 stocks (as of September 2014) generated a return of 9.5% during the same 12-month period, with 63% of these stock picks outperformed the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 16-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Domino’s Pizza, Inc. (NYSE:DPZ).
Domino’s Pizza, Inc. (NYSE:DPZ) was in 28 hedge funds’ portfolios at the end of September. DPZ has seen an increase in enthusiasm from smart money recently. There were 23 hedge funds in our database with DPZ positions at the end of the previous quarter. At the end of this article we will also compare DPZ to other stocks including NiSource Inc. (NYSE:NI), Atmos Energy Corporation (NYSE:ATO), and OneMain Holdings Inc (NYSE:LEAF) to get a better sense of its popularity.
Follow Dominos Pizza Inc (NYSE:DPZ)
Follow Dominos Pizza Inc (NYSE:DPZ)
Now, let’s go over the recent action encompassing Domino’s Pizza, Inc. (NYSE:DPZ).
What have hedge funds been doing with Domino’s Pizza, Inc. (NYSE:DPZ)?
At Q3’s end, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 22% from the second quarter. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Renaissance Technologies, managed by Jim Simons, holds the most valuable position in Domino’s Pizza, Inc. (NYSE:DPZ). Renaissance Technologies has a $304.3 million position in the stock, comprising 0.7% of its 13F portfolio. The second most bullish fund manager is Andy Brown of Cedar Rock Capital, with a $231.3 million position; the fund has 6% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that hold long positions contain Ken Fisher’s Fisher Asset Management, Richard Chilton’s Chilton Investment Company and Gabriel Plotkin’s Melvin Capital Management.
As aggregate interest increased, key hedge funds have jumped into Domino’s Pizza, Inc. (NYSE:DPZ) headfirst. ZWEIG DIMENNA PARTNERS, managed by Joe DiMenna, created the most valuable position in Domino’s Pizza, Inc. (NYSE:DPZ). ZWEIG DIMENNA PARTNERS had $10.1 million invested in the company at the end of the quarter. Matthew Hulsizer’s PEAK6 Capital Management also made a $1.3 million investment in the stock during the quarter. The other funds with brand new DPZ positions are Larry Foley and Paul Farrell’s Bronson Point Partners, Lawrence Sapanski’s Scoria Capital, and Richard Driehaus’s Driehaus Capital.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Domino’s Pizza, Inc. (NYSE:DPZ) but similarly valued. These stocks are NiSource Inc. (NYSE:NI), Atmos Energy Corporation (NYSE:ATO), OneMain Holdings Inc (NYSE:LEAF), and Dicks Sporting Goods Inc (NYSE:DKS). All of these stocks’ market caps resemble DPZ’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NI | 23 | 489881 | -7 |
| ATO | 11 | 114289 | -6 |
| LEAF | 32 | 3687063 | -1 |
| DKS | 26 | 340088 | -6 |
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $1158 million. That figure was $1,024 million in DPZ’s case. OneMain Holdings Inc (NYSE:LEAF) is the most popular stock in this table. On the other hand Atmos Energy Corporation (NYSE:ATO) is the least popular one with only 11 bullish hedge fund positions. Domino’s Pizza, Inc. (NYSE:DPZ) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal which, in combination with the total number of funds long the stock increasing by 5, makes the stock worthy of a closer look.
