Do Hedge Funds Love Dawson Geophysical Company (DWSN)?

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 Dawson Geophysical Company (NASDAQ:DWSN).

Dawson Geophysical Company (NASDAQ:DWSN) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 6 hedge funds’ portfolios at the end of the third quarter of 2020. Our calculations also showed that DWSN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare DWSN to other stocks including First US Bancshares, Inc. (NASDAQ:FUSB), PainReform Ltd. (NASDAQ:PRFX), and Atlantic American Corporation (NASDAQ:AAME) to get a better sense of its popularity.

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 66 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 13% through November 17th. 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. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. You can subscribe to our free daily newsletter on our website. Now we’re going to view the latest hedge fund action encompassing Dawson Geophysical Company (NASDAQ:DWSN).

What have hedge funds been doing with Dawson Geophysical Company (NASDAQ:DWSN)?

At the end of September, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 8 hedge funds held shares or bullish call options in DWSN a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stake in Dawson Geophysical Company (NASDAQ:DWSN), which was worth $2.9 million at the end of the third quarter. On the second spot was Minerva Advisors which amassed $0.7 million worth of shares. Ancora Advisors, Royce & Associates, and Two Sigma Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Minerva Advisors allocated the biggest weight to Dawson Geophysical Company (NASDAQ:DWSN), around 0.47% of its 13F portfolio. Dalton Investments is also relatively very bullish on the stock, designating 0.01 percent of its 13F equity portfolio to DWSN.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: GRT Capital Partners. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Dalton Investments).

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Dawson Geophysical Company (NASDAQ:DWSN) but similarly valued. We will take a look at First US Bancshares, Inc. (NASDAQ:FUSB), PainReform Ltd. (NASDAQ:PRFX), Atlantic American Corporation (NASDAQ:AAME), Pulmatrix, Inc. (NASDAQ:PULM), Borqs Technologies, Inc. (NASDAQ:BRQS), PolarityTE, Inc. (NASDAQ:PTE), and ProPhase Labs Inc (NASDAQ:PRPH). All of these stocks’ market caps match DWSN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FUSB 2 2227 0
PRFX 2 4986 2
AAME 1 111 0
PULM 5 4678 3
BRQS 1 274 -2
PTE 7 3163 -4
PRPH 1 760 0
Average 2.7 2314 -0.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 2.7 hedge funds with bullish positions and the average amount invested in these stocks was $2 million. That figure was $4 million in DWSN’s case. PolarityTE, Inc. (NASDAQ:PTE) is the most popular stock in this table. On the other hand Atlantic American Corporation (NASDAQ:AAME) is the least popular one with only 1 bullish hedge fund positions. Dawson Geophysical Company (NASDAQ:DWSN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DWSN is 64.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. Hedge funds were also right about betting on DWSN as the stock returned 15.3% since the end of Q3 (through 11/27) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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