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Did Hedge Funds Make The Right Call On Dover Corporation (DOV)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Dover Corporation (NYSE:DOV) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Dover Corporation (NYSE:DOV) was in 31 hedge funds’ portfolios at the end of the first quarter of 2020. DOV has experienced an increase in hedge fund sentiment lately. There were 29 hedge funds in our database with DOV holdings at the end of the previous quarter. Our calculations also showed that DOV 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.

Phill Gross of Adage Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Keeping this in mind let’s view the key hedge fund action regarding Dover Corporation (NYSE:DOV).

Hedge fund activity in Dover Corporation (NYSE:DOV)

Heading into the second quarter of 2020, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in DOV over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is DOV A Good Stock To Buy?

The largest stake in Dover Corporation (NYSE:DOV) was held by Citadel Investment Group, which reported holding $248.9 million worth of stock at the end of September. It was followed by Adage Capital Management with a $148.9 million position. Other investors bullish on the company included Balyasny Asset Management, D E Shaw, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Sustainable Insight Capital Management allocated the biggest weight to Dover Corporation (NYSE:DOV), around 2.74% of its 13F portfolio. Scopus Asset Management is also relatively very bullish on the stock, earmarking 1.31 percent of its 13F equity portfolio to DOV.

As industrywide interest jumped, specific money managers were leading the bulls’ herd. Balyasny Asset Management, managed by Dmitry Balyasny, established the biggest position in Dover Corporation (NYSE:DOV). Balyasny Asset Management had $36.5 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $30.7 million position during the quarter. The other funds with new positions in the stock are Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management, and Andrew Weiss’s Weiss Asset Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Dover Corporation (NYSE:DOV) but similarly valued. We will take a look at Healthpeak Properties, Inc. (NYSE:PEAK), Restaurant Brands International Inc (NYSE:QSR), Lennar Corporation (NYSE:LEN), and Duke Realty Corporation (NYSE:DRE). This group of stocks’ market values are closest to DOV’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PEAK 26 292181 0
QSR 41 2250209 -11
LEN 57 1121019 -6
DRE 16 64897 -8
Average 35 932077 -6.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $932 million. That figure was $645 million in DOV’s case. Lennar Corporation (NYSE:LEN) is the most popular stock in this table. On the other hand Duke Realty Corporation (NYSE:DRE) is the least popular one with only 16 bullish hedge fund positions. Dover Corporation (NYSE:DOV) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 gained 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately DOV wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); DOV investors were disappointed as the stock returned 15.6% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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