Is Dril-Quip, Inc. (DRQ) A Good Stock To Buy?

The elite funds run by legendary investors such as Dan Loeb and David Tepper make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don’t follow. Because of their pay structures, they have strong incentive to do the research necessary to beat the market. That’s why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at Dril-Quip, Inc. (NYSE:DRQ) from the perspective of those elite funds.

Dril-Quip, Inc. (NYSE:DRQ) shareholders have witnessed an increase in support from the world’s most elite money managers in recent months, with hedge fund ownership rising by 3 funds. 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 Terex Corporation (NYSE:TEX), Rowan Companies PLC (NYSE:RDC), and Cavium Inc (NASDAQ:CAVM) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

How have hedgies been trading Dril-Quip, Inc. (NYSE:DRQ)?

At Q3’s end, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a 14% increase from the previous quarter, erasing the decline during the second quarter. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Cliff Asness’ AQR Capital Management has the most valuable position in Dril-Quip, Inc. (NYSE:DRQ), worth close to $26.7 million. The second most bullish fund manager is Marshall Wace LLP, led by Paul Marshall and Ian Wace, holding a $23.8 million call position. Some other members of the smart money with similar optimism contain Ken Fisher’s Fisher Asset Management, Jim Simons’ Renaissance Technologies and Joel Greenblatt’s Gotham Asset Management.

As industry-wide interest jumped, specific money managers have jumped into Dril-Quip, Inc. (NYSE:DRQ) headfirst. Two Sigma Advisors, managed by John Overdeck and David Siegel, created the most outsized position in Dril-Quip, Inc. (NYSE:DRQ). Two Sigma Advisors had $3.3 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also made a $3.1 million investment in the stock during the quarter. The following funds were also among the new DRQ investors: Neil Chriss’ Hutchin Hill Capital, James Dondero’s Highland Capital Management, and Joshua Packwood and Schuster Tanger’s Radix Partners.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Dril-Quip, Inc. (NYSE:DRQ) but similarly valued. These stocks are Terex Corporation (NYSE:TEX), Rowan Companies PLC (NYSE:RDC), Cavium Inc (NASDAQ:CAVM), and Washington Federal Inc. (NASDAQ:WAFD). All of these stocks’ market caps resemble DRQ’s market cap.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $287 million. That figure was $146 million in DRQ’s case. Rowan Companies PLC (NYSE:RDC) is the most popular stock in this table. On the other hand Washington Federal Inc. (NASDAQ:WAFD) is the least popular one with only 13 bullish hedge fund positions. Dril-Quip, Inc. (NYSE:DRQ) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard RDC might be a better candidate to consider a long position in.

Disclosure: None