Amid an overall market correction, many stocks that smart money investors were collectively bullish on tanked during the third quarter. Among them, Valeant and Micron ranked among the top 30 picks and both lost around 20%. Citigroup, which was the third most popular stock, lost 10% amid uncertainty regarding the interest rates. Nevertheless, our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Dolby Laboratories, Inc. (NYSE:DLB) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 21 hedge funds’ portfolios at the end of September. 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 Nice Systems Ltd (ADR) (NASDAQ:NICE), Retail Properties of America Inc (NYSE:RPAI), and ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) to gather more data points.
Keeping this in mind, we’re going to check out the key action surrounding Dolby Laboratories, Inc. (NYSE:DLB).
How have hedgies been trading Dolby Laboratories, Inc. (NYSE:DLB)?
Of the funds tracked by Insider Monkey, MFP Investors, managed by Michael Price, holds the largest position in Dolby Laboratories, Inc. (NYSE:DLB). MFP Investors has a $33.4 million position in the stock, comprising 5% of its 13F portfolio. Coming in second is Nantahala Capital Management, led by Wilmot B. Harkey and Daniel Mack, holding a $28.5 million position; 3.9% of its 13F portfolio is allocated to the stock. Other professional money managers that are bullish contain Chuck Royce’s Royce & Associates, Peter S. Park’s Park West Asset Management and Jim Simons’s Renaissance Technologies.
Interestingly, Paul Marshall and Ian Wace’s Marshall Wace LLP dropped the biggest investment of the “upper crust” of funds watched by Insider Monkey, totaling about $2.3 million in stock. Neil Chriss’s fund, Hutchin Hill Capital, also dumped its stock, about $2 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Dolby Laboratories, Inc. (NYSE:DLB) but similarly valued. These stocks are Nice Systems Ltd (ADR) (NASDAQ:NICE), Retail Properties of America Inc (NYSE:RPAI), ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD), and Owens-Illinois Inc (NYSE:OI). This group of stocks’ market valuations resemble DLB’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $509 million. That figure was $162 million in DLB’s case. ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) is the most popular stock in this table. On the other hand Retail Properties of America Inc (NYSE:RPAI) is the least popular one with only 17 bullish hedge fund positions. Dolby Laboratories, Inc. (NYSE:DLB) 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. In this regard ACAD might be a better candidate to consider a long position.