The market has been volatile as the Federal Reserve winds down its easy money policies. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 14 percentage points between June 25th and the end of October. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure, and the funds’ movements is one of the reasons why the major indexes have retraced. In this article, we analyze what the smart money thinks of Daqo New Energy Corp (NYSE:DQ) and find out how it is affected by hedge funds’ moves.
Daqo New Energy Corp (NYSE:DQ) has seen a decrease in enthusiasm from smart money recently. It is important to note that the trading environment surrounding Daqo New Energy Corp (NYSE:DQ) took a similar turn, with the shares dropping 32.1% during the third quarter. For an in-depth understanding of the hedge fund behavior, we will cover hedge funds holding positions in the company, at the end of September.
The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article, we will examine companies such as Core Molding Technologies, Inc. (NYSEMKT:CMT), Neff Corp (NYSE:NEFF), and Luby’s, Inc. (NYSE:LUB) to gather more data points.
Follow Daqo New Energy Corp (NYSE:DQ)
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If you’d ask most stock holders, hedge funds are viewed as underperforming, old financial vehicles of the past. While there are greater than 8000 funds in operation at the moment, our researchers choose to focus on the upper echelon of this group, approximately 700 funds. These hedge fund managers shepherd most of the hedge fund industry’s total capital, and by keeping an eye on their highest performing equity investments, Insider Monkey has identified numerous investment strategies that have historically outrun the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy surpassed the S&P 500 index by 12 percentage points a year for a decade in their back tests.
Now, let’s take a peek at the key action encompassing Daqo New Energy Corp (NYSE:DQ).
How are hedge funds trading Daqo New Energy Corp (NYSE:DQ)?
Heading into Q4, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a decrease of 20% from one quarter earlier. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
According to Insider Monkey’s hedge fund and institutional investor database, Quentec Asset Management, managed by Ken Hahn, holds the number one position in Daqo New Energy Corp (NYSE:DQ). Quentec Asset Management has a $9.8 million position in the stock, comprising 1.7% of its 13F portfolio. Coming in second is Jonathan Barrett and Paul Segal of Luminus Management, with a $5.4 million position; 0.2% of its 13F portfolio is allocated to the stock. Some other peers that hold long positions contain Chuck Royce’s Royce & Associates, and Warren Lammert’s Granite Point Capital.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Electron Capital Partners. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically, a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 700+ hedge funds tracked by Insider Monkey identified Daqo New Energy Corp (NYSE:DQ) as a viable investment and initiated a position in the stock.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Daqo New Energy Corp (NYSE:DQ) but similarly valued. These stocks are Core Molding Technologies, Inc. (NYSEMKT:CMT), Neff Corp (NYSE:NEFF), Luby’s, Inc. (NYSE:LUB), and Westfield Financial, Inc. (NASDAQ:WFD). This group of stocks’ market valuations are similar to Daqo New Energy Corp (NYSE:DQ)’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CMT | 5 | 14357 | 1 |
| NEFF | 5 | 8671 | 0 |
| LUB | 4 | 12139 | -1 |
| WFD | 5 | 20206 | -1 |
As you can see, these stocks had an average of 5 hedge funds with bullish positions and the average amount invested in these stocks was $14 million. That figure was $17 million in Daqo New Energy Corp (NYSE:DQ)’s case. Core Molding Technologies, Inc. (NYSEMKT:CMT) is the most popular stock in this table. On the other hand, Luby’s, Inc. (NYSE:LUB) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks, Daqo New Energy Corp (NYSE:DQ) is even less popular than Luby’s, Inc. (NYSE:LUB). Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case, more research is warranted.
