Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the 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 quarter, 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 quarter 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 Dolby Laboratories, Inc. (NYSE:DLB) changed recently.
Is Dolby Laboratories, Inc. (NYSE:DLB) a buy here? Money managers are in a bullish mood. The number of bullish hedge fund positions improved by 6 recently. Our calculations also showed that dlb isn’t among the 30 most popular stocks among hedge funds. DLB was in 29 hedge funds’ portfolios at the end of March. There were 23 hedge funds in our database with DLB positions at the end of the previous quarter.
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 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Let’s analyze the new hedge fund action surrounding Dolby Laboratories, Inc. (NYSE:DLB).
What does the smart money think about Dolby Laboratories, Inc. (NYSE:DLB)?
Heading into the second quarter of 2019, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 26% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in DLB over the last 15 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies, managed by Jim Simons, holds the most valuable position in Dolby Laboratories, Inc. (NYSE:DLB). Renaissance Technologies has a $174 million position in the stock, comprising 0.2% of its 13F portfolio. The second largest stake is held by Brian Ashford-Russell and Tim Woolley of Polar Capital, with a $87.9 million position; the fund has 0.8% of its 13F portfolio invested in the stock. Some other professional money managers that are bullish include Michael Price’s MFP Investors, John Overdeck and David Siegel’s Two Sigma Advisors and Israel Englander’s Millennium Management.
Now, specific money managers were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the largest position in Dolby Laboratories, Inc. (NYSE:DLB). Arrowstreet Capital had $4.8 million invested in the company at the end of the quarter. Peter S. Park’s Park West Asset Management also made a $3.1 million investment in the stock during the quarter. The following funds were also among the new DLB investors: Paul Marshall and Ian Wace’s Marshall Wace LLP, Paul Tudor Jones’s Tudor Investment Corp, and Minhua Zhang’s Weld Capital Management.
Let’s now review hedge fund activity in other stocks similar to Dolby Laboratories, Inc. (NYSE:DLB). These stocks are Telecom Argentina S.A. (NYSE:TEO), Mellanox Technologies, Ltd. (NASDAQ:MLNX), FLIR Systems, Inc. (NASDAQ:FLIR), and Commerce Bancshares, Inc. (NASDAQ:CBSH). All of these stocks’ market caps are similar to DLB’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 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $533 million. That figure was $536 million in DLB’s case. Mellanox Technologies, Ltd. (NASDAQ:MLNX) is the most popular stock in this table. On the other hand Telecom Argentina S.A. (NYSE:TEO) is the least popular one with only 9 bullish hedge fund positions. Dolby Laboratories, Inc. (NYSE:DLB) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately DLB wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on DLB were disappointed as the stock returned -1.3% during the same period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.