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Should You Avoid DigitalGlobe Inc (DGI)?

World-class money managers like Bill Ackman and Barry Rosenstein only invest their wealthy clients’ money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It’s not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It’s also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.

DigitalGlobe Inc (NYSE:DGI) has seen a decrease in activity from the world’s largest hedge funds recently. 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 IPC Healthcare Inc (NASDAQ:IPCM), Moelis & Co (NYSE:MC), and Oil States International, Inc. (NYSE:OIS) to gather more data points.

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According to most traders, hedge funds are perceived as worthless, old financial vehicles of years past. While there are over 8000 funds trading at the moment, Our researchers look at the upper echelon of this group, approximately 700 funds. Most estimates calculate that this group of people shepherd bulk of the hedge fund industry’s total capital, and by observing their unrivaled equity investments, Insider Monkey has figured out several investment strategies that have historically defeated the broader indices. Insider Monkey’s small-cap hedge fund strategy outrun the S&P 500 index by 12 percentage points per annum for a decade in their back tests.

With all of this in mind, we’re going to analyze the latest action encompassing DigitalGlobe Inc (NYSE:DGI).

Hedge fund activity in DigitalGlobe Inc (NYSE:DGI)

At Q3’s end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -28% from the second quarter. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Mariko Gordon’s Daruma Asset Management has the number one position in DigitalGlobe Inc (NYSE:DGI), worth close to $47.6 million, corresponding to 2.9% of its total 13F portfolio. On Daruma Asset Management’s heels is D. E. Shaw of D E Shaw, with a $21 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors with similar optimism contain Joel Greenblatt’s Gotham Asset Management, Bart Baum’s Ionic Capital Management and Charles Paquelet’s Skylands Capital.

Seeing as DigitalGlobe Inc (NYSE:DGI) has witnessed falling interest from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of hedgies who were dropping their full holdings last quarter. At the top of the heap, James Dinan’s York Capital Management sold off the biggest investment of the 700 funds tracked by Insider Monkey, totaling an estimated $35.6 million in stock. Leon Shaulov’s fund, Maplelane Capital, also said goodbye to its stock, about $9.3 million worth. These moves are interesting, as total hedge fund interest dropped by 7 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to DigitalGlobe Inc (NYSE:DGI). We will take a look at IPC Healthcare Inc (NASDAQ:IPCM), Moelis & Co (NYSE:MC), Oil States International, Inc. (NYSE:OIS), and La-Z-Boy Incorporated (NYSE:LZB). This group of stocks’ market caps resemble DGI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
IPCM 15 260403 3
MC 11 45528 0
OIS 18 131093 1
LZB 18 83558 2

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $130 million. That figure was $124 million in DGI’s case. Oil States International, Inc. (NYSE:OIS) is the most popular stock in this table, while the least popular one, with only 11 bullish hedge fund positions is Moelis & Co (NYSE:MC). DigitalGlobe Inc (NYSE:DGI) is not the most popular nor the least popular stock in this group. It has succeeded in attracting investors’ attention above average. Even though this may imply it is a good stock to buy, we’d rather spend our time researching stocks that hedge funds are collectively the most fond of, such as OIS and LZB, in this particular group.

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