Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before last year’s Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Discovery Communications Inc. (NASDAQ:DISCK) changed recently.
Hedge fund interest in Discovery Communications Inc. (NASDAQ:DISCK) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare DISCK to other stocks including Burlington Stores Inc (NYSE:BURL), W.R. Berkley Corporation (NYSE:WRB), and Liberty Media Corporation (NASDAQ:LSXMA) to get a better sense of its popularity.
To most shareholders, hedge funds are perceived as underperforming, outdated investment tools of yesteryear. While there are over 8000 funds trading today, Our researchers choose to focus on the moguls of this club, about 750 funds. Most estimates calculate that this group of people oversee most of all hedge funds’ total asset base, and by following their inimitable investments, Insider Monkey has determined a few investment strategies that have historically defeated Mr. Market. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points per year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
John Paulson of Paulson & Co
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s take a look at the fresh hedge fund action surrounding Discovery Communications Inc. (NASDAQ:DISCK).
How have hedgies been trading Discovery Communications Inc. (NASDAQ:DISCK)?
Heading into the fourth quarter of 2019, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in DISCK over the last 17 quarters. With hedge funds’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
The largest stake in Discovery Communications Inc. (NASDAQ:DISCK) was held by Paulson & Co, which reported holding $268.9 million worth of stock at the end of September. It was followed by CQS Cayman LP with a $135.8 million position. Other investors bullish on the company included Hudson Bay Capital Management, Citadel Investment Group, and GAMCO Investors. In terms of the portfolio weights assigned to each position CQS Cayman LP allocated the biggest weight to Discovery Communications Inc. (NASDAQ:DISCK), around 6% of its 13F portfolio. Paulson & Co is also relatively very bullish on the stock, designating 5.39 percent of its 13F equity portfolio to DISCK.
Because Discovery Communications Inc. (NASDAQ:DISCK) has faced falling interest from hedge fund managers, it’s safe to say that there was a specific group of hedge funds that elected to cut their entire stakes in the third quarter. At the top of the heap, Steve Pigott’s Fort Baker Capital Management said goodbye to the biggest stake of the “upper crust” of funds watched by Insider Monkey, worth close to $5.8 million in stock, and Nick Niell’s Arrowgrass Capital Partners was right behind this move, as the fund said goodbye to about $2.7 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks similar to Discovery Communications Inc. (NASDAQ:DISCK). These stocks are Burlington Stores Inc (NYSE:BURL), W.R. Berkley Corporation (NYSE:WRB), Liberty Media Corporation (NASDAQ:LSXMA), and CrowdStrike Holdings, Inc. (NASDAQ:CRWD). This group of stocks’ market caps are similar to DISCK’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BURL | 37 | 1512597 | 6 |
| WRB | 21 | 337881 | -2 |
| LSXMA | 39 | 1484908 | 5 |
| CRWD | 28 | 273644 | -13 |
| Average | 31.25 | 902258 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.25 hedge funds with bullish positions and the average amount invested in these stocks was $902 million. That figure was $727 million in DISCK’s case. Liberty Media Corporation (NASDAQ:LSXMA) is the most popular stock in this table. On the other hand W.R. Berkley Corporation (NYSE:WRB) is the least popular one with only 21 bullish hedge fund positions. Discovery Communications Inc. (NASDAQ:DISCK) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. A small number of hedge funds were also right about betting on DISCK, though not to the same extent, as the stock returned 32.5% in 2019 (as of 12/23) and outperformed the market.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
