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 Domo Inc. (NASDAQ:DOMO) and determine whether hedge funds had an edge regarding this stock.
Domo Inc. (NASDAQ:DOMO) was in 21 hedge funds’ portfolios at the end of June. The all time high for this statistics is 21. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. DOMO investors should pay attention to an increase in support from the world’s most elite money managers lately. There were 15 hedge funds in our database with DOMO holdings at the end of March. Our calculations also showed that DOMO isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
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 precious metals prices. So, we are checking out this junior gold mining stock. We are also checking out this lithium company which could benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Now let’s take a gander at the new hedge fund action surrounding Domo Inc. (NASDAQ:DOMO).
How are hedge funds trading Domo Inc. (NASDAQ:DOMO)?
At the end of June, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 40% from the previous quarter. On the other hand, there were a total of 14 hedge funds with a bullish position in DOMO a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Sylebra Capital Management, managed by Daniel Patrick Gibson, holds the largest position in Domo Inc. (NASDAQ:DOMO). Sylebra Capital Management has a $75 million position in the stock, comprising 2.3% of its 13F portfolio. Coming in second is Constantinos J. Christofilis of Archon Capital Management, with a $38.7 million position; 8.3% of its 13F portfolio is allocated to the stock. Other peers that hold long positions consist of David Atterbury’s Whetstone Capital Advisors, Renaissance Technologies and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Archon Capital Management allocated the biggest weight to Domo Inc. (NASDAQ:DOMO), around 8.31% of its 13F portfolio. Whetstone Capital Advisors is also relatively very bullish on the stock, earmarking 5.43 percent of its 13F equity portfolio to DOMO.
Now, some big names were leading the bulls’ herd. Renaissance Technologies, assembled the most outsized position in Domo Inc. (NASDAQ:DOMO). Renaissance Technologies had $21.8 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $4.9 million investment in the stock during the quarter. The following funds were also among the new DOMO investors: Peter Muller’s PDT Partners, D. E. Shaw’s D E Shaw, and Paul Marshall and Ian Wace’s Marshall Wace LLP.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Domo Inc. (NASDAQ:DOMO) but similarly valued. We will take a look at PGT Innovations Inc. (NASDAQ:PGTI), The RMR Group Inc. (NASDAQ:RMR), S & T Bancorp Inc (NASDAQ:STBA), Construction Partners, Inc. (NASDAQ:ROAD), Standard Motor Products, Inc. (NYSE:SMP), Johnson Outdoors Inc. (NASDAQ:JOUT), and Employers Holdings, Inc. (NYSE:EIG). All of these stocks’ market caps are closest to DOMO’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.6 hedge funds with bullish positions and the average amount invested in these stocks was $57 million. That figure was $228 million in DOMO’s case. Standard Motor Products, Inc. (NYSE:SMP) is the most popular stock in this table. On the other hand S & T Bancorp Inc (NASDAQ:STBA) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Domo Inc. (NASDAQ:DOMO) is more popular among hedge funds. Our overall hedge fund sentiment score for DOMO is 90. 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 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 24.8% in 2020 through the end of September but still managed to beat the market by 19.3 percentage points. Hedge funds were also right about betting on DOMO as the stock returned 19.1% since the end of June 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.