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 fourth quarter, many investors lost money due to unpredictable events such as the sudden increase in long-term interest rates and unintended consequences of the trade war with China. Nevertheless, many of the stocks that tanked in the fourth quarter still sport strong fundamentals and their decline was 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 Douglas Dynamics Inc (NYSE:PLOW) changed recently.
Douglas Dynamics Inc (NYSE:PLOW) shareholders have witnessed an increase in hedge fund interest lately. Our calculations also showed that plow isn’t among the 30 most popular stocks among hedge funds.
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 market by 32 percentage points since May 2014 through March 12, 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We’re going to review the new hedge fund action encompassing Douglas Dynamics Inc (NYSE:PLOW).
What have hedge funds been doing with Douglas Dynamics Inc (NYSE:PLOW)?
At the end of the fourth quarter, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from one quarter earlier. On the other hand, there were a total of 10 hedge funds with a bullish position in PLOW a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
More specifically, Navellier & Associates was the largest shareholder of Douglas Dynamics Inc (NYSE:PLOW), with a stake worth $3.3 million reported as of the end of December. Trailing Navellier & Associates was Cannell Capital, which amassed a stake valued at $1.9 million. PEAK6 Capital Management, AQR Capital Management, and Winton Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Now, key money managers were breaking ground themselves. Cannell Capital, managed by J. Carlo Cannell, established the biggest position in Douglas Dynamics Inc (NYSE:PLOW). Cannell Capital had $1.9 million invested in the company at the end of the quarter. Matthew Hulsizer’s PEAK6 Capital Management also made a $0.9 million investment in the stock during the quarter. The only other fund with a new position in the stock is Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.
Let’s check out hedge fund activity in other stocks similar to Douglas Dynamics Inc (NYSE:PLOW). We will take a look at Knoll Inc (NYSE:KNL), Entercom Communications Corp. (NYSE:ETM), PlayAGS, Inc. (NYSE:AGS), and Adecoagro SA (NYSE:AGRO). This group of stocks’ market values resemble PLOW’s market value.
|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 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $110 million. That figure was $8 million in PLOW’s case. Knoll Inc (NYSE:KNL) is the most popular stock in this table. On the other hand PlayAGS, Inc. (NYSE:AGS) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Douglas Dynamics Inc (NYSE:PLOW) is even less popular than AGS. Hedge funds dodged a bullet by taking a bearish stance towards PLOW. Our calculations showed that the top 15 most popular hedge fund stocks returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately PLOW wasn’t nearly as popular as these 15 stock (hedge fund sentiment was very bearish); PLOW investors were disappointed as the stock returned 8.3% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.