Did Hedge Funds Make The Right Call On Dycom Industries, Inc. (DY)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Dycom Industries, Inc. (NYSE:DY) and determine whether the smart money was really smart about this stock.

Dycom Industries, Inc. (NYSE:DY) investors should be aware of a decrease in hedge fund interest in recent months. DY was in 17 hedge funds’ portfolios at the end of the first quarter of 2020. There were 18 hedge funds in our database with DY holdings at the end of the previous quarter. Our calculations also showed that DY 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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.

William Harnisch

William Harnisch of Peconic Partners LLC

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. Keeping this in mind we’re going to view the fresh hedge fund action encompassing Dycom Industries, Inc. (NYSE:DY).

How have hedgies been trading Dycom Industries, Inc. (NYSE:DY)?

At Q1’s end, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the fourth quarter of 2019. On the other hand, there were a total of 17 hedge funds with a bullish position in DY a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Dycom Industries, Inc. (NYSE:DY) was held by ACK Asset Management, which reported holding $24.8 million worth of stock at the end of September. It was followed by Peconic Partners LLC with a $13 million position. Other investors bullish on the company included Millennium Management, Empyrean Capital Partners, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position ACK Asset Management allocated the biggest weight to Dycom Industries, Inc. (NYSE:DY), around 12.38% of its 13F portfolio. Peconic Partners LLC is also relatively very bullish on the stock, setting aside 5.03 percent of its 13F equity portfolio to DY.

Judging by the fact that Dycom Industries, Inc. (NYSE:DY) has faced declining sentiment from the aggregate hedge fund industry, it’s safe to say that there was a specific group of hedge funds that slashed their full holdings by the end of the first quarter. It’s worth mentioning that Howard Marks’s Oaktree Capital Management dumped the largest investment of the “upper crust” of funds tracked by Insider Monkey, totaling about $19.8 million in stock. Michael O’Keefe’s fund, 12th Street Asset Management, also cut its stock, about $6 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 1 funds by the end of the first quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Dycom Industries, Inc. (NYSE:DY) but similarly valued. We will take a look at Douglas Dynamics Inc (NYSE:PLOW), CTS Corporation (NYSE:CTS), Ameresco Inc (NYSE:AMRC), and Huami Corporation (NYSE:HMI). All of these stocks’ market caps are closest to DY’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PLOW 9 14986 -3
CTS 9 67636 -1
AMRC 11 46335 3
HMI 5 20451 -4
Average 8.5 37352 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $37 million. That figure was $83 million in DY’s case. Ameresco Inc (NYSE:AMRC) is the most popular stock in this table. On the other hand Huami Corporation (NYSE:HMI) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Dycom Industries, Inc. (NYSE:DY) 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 DY as the stock returned 69.4% 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.