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 Delphi Technologies PLC (NYSE:DLPH) and determine whether hedge funds had an edge regarding this stock.
Is Delphi Technologies PLC (NYSE:DLPH) a buy here? Money managers were betting on the stock. The number of bullish hedge fund positions rose by 8 lately. Delphi Technologies PLC (NYSE:DLPH) was in 27 hedge funds’ portfolios at the end of June. The all time high for this statistics is 56. Our calculations also showed that DLPH 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). There were 19 hedge funds in our database with DLPH positions at the end of the first quarter.
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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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. With all of this in mind let’s take a peek at the latest hedge fund action surrounding Delphi Technologies PLC (NYSE:DLPH).
How have hedgies been trading Delphi Technologies PLC (NYSE:DLPH)?
At Q2’s end, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 42% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards DLPH over the last 20 quarters. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Matthew Halbower’s Pentwater Capital Management has the biggest position in Delphi Technologies PLC (NYSE:DLPH), worth close to $63 million, corresponding to 1.1% of its total 13F portfolio. Coming in second is Robert Emil Zoellner of Alpine Associates, with a $51.8 million position; the fund has 3% of its 13F portfolio invested in the stock. Other professional money managers that hold long positions contain John Orrico’s Water Island Capital, Alec Litowitz and Ross Laser’s Magnetar Capital and Steven Clark’s Omni Partners. In terms of the portfolio weights assigned to each position Water Island Capital allocated the biggest weight to Delphi Technologies PLC (NYSE:DLPH), around 4.01% of its 13F portfolio. Alpine Associates is also relatively very bullish on the stock, dishing out 2.98 percent of its 13F equity portfolio to DLPH.
Consequently, key hedge funds were breaking ground themselves. Omni Partners, managed by Steven Clark, created the most outsized position in Delphi Technologies PLC (NYSE:DLPH). Omni Partners had $20.6 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $13.1 million position during the quarter. The other funds with new positions in the stock are Michel Massoud’s Melqart Asset Management, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Delphi Technologies PLC (NYSE:DLPH) but similarly valued. We will take a look at ICF International Inc (NASDAQ:ICFI), First Bancorp (NYSE:FBP), Mesoblast Limited (NASDAQ:MESO), AMC Networks Inc (NASDAQ:AMCX), Alamo Group, Inc. (NYSE:ALG), AdaptHealth Corp. (NASDAQ:AHCO), and PC Connection, Inc. (NASDAQ:CNXN). This group of stocks’ market valuations are similar to DLPH’s market valuation.
|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 13.7 hedge funds with bullish positions and the average amount invested in these stocks was $81 million. That figure was $299 million in DLPH’s case. First Bancorp (NYSE:FBP) is the most popular stock in this table. On the other hand Mesoblast Limited (NASDAQ:MESO) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Delphi Technologies PLC (NYSE:DLPH) is more popular among hedge funds. Our overall hedge fund sentiment score for DLPH is 74.5. 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 21.3% in 2020 through September 25th but still managed to beat the market by 17.7 percentage points. Hedge funds were also right about betting on DLPH as the stock returned 11.1% 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.