Did Hedge Funds Make The Right Call On Diebold Nixdorf Incorporated (DBD) ?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Diebold Nixdorf Incorporated (NYSE:DBD) and determine whether hedge funds had an edge regarding this stock.

Diebold Nixdorf Incorporated (NYSE:DBD) investors should pay attention to a decrease in hedge fund interest recently. Our calculations also showed that DBD isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Fred DiSanto Ancora Advisors

Fred DiSanto of Ancora Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind we’re going to view the fresh hedge fund action encompassing Diebold Nixdorf Incorporated (NYSE:DBD).

How have hedgies been trading Diebold Nixdorf Incorporated (NYSE:DBD)?

At Q1’s end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -19% from the previous quarter. By comparison, 18 hedge funds held shares or bullish call options in DBD a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Diebold Nixdorf Incorporated (NYSE:DBD) was held by GAMCO Investors, which reported holding $18.3 million worth of stock at the end of September. It was followed by Ancora Advisors with a $11.2 million position. Other investors bullish on the company included Miller Value Partners, D E Shaw, and Brigade Capital. In terms of the portfolio weights assigned to each position Prescott Group Capital Management allocated the biggest weight to Diebold Nixdorf Incorporated (NYSE:DBD), around 0.93% of its 13F portfolio. Miller Value Partners is also relatively very bullish on the stock, designating 0.66 percent of its 13F equity portfolio to DBD.

Because Diebold Nixdorf Incorporated (NYSE:DBD) has faced a decline in interest from the aggregate hedge fund industry, logic holds that there exists a select few fund managers who sold off their positions entirely in the first quarter. At the top of the heap, Derek C. Schrier’s Indaba Capital Management cut the largest position of all the hedgies watched by Insider Monkey, comprising close to $10.5 million in stock. Peter Algert and Kevin Coldiron’s fund, Algert Coldiron Investors, also said goodbye to its stock, about $0.4 million worth. These transactions are interesting, as total hedge fund interest was cut by 4 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Diebold Nixdorf Incorporated (NYSE:DBD) but similarly valued. We will take a look at Golden Star Resources Ltd. (NYSE:GSS), Movado Group, Inc (NYSE:MOV), SCVX Corp. (NYSE:SCVX), and Vishay Precision Group Inc (NYSE:VPG). This group of stocks’ market valuations are similar to DBD’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GSS 6 8515 3
MOV 13 13616 1
SCVX 14 84898 14
VPG 15 90910 -2
Average 12 49485 4

View table here if you experience formatting issues.

As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $49 million. That figure was $59 million in DBD’s case. Vishay Precision Group Inc (NYSE:VPG) is the most popular stock in this table. On the other hand Golden Star Resources Ltd. (NYSE:GSS) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Diebold Nixdorf Incorporated (NYSE:DBD) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 18.6% in 2020 through July 27th but still managed to beat the market by 17.1 percentage points. Hedge funds were also right about betting on DBD as the stock returned 82.4% since Q1 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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Disclosure: None. This article was originally published at Insider Monkey.