Is Diamond Foods, Inc. (DMND) A Good Stock To Buy?

The Insider Monkey team has completed processing the quarterly 13F filings for the September quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors endured a torrid quarter, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Diamond Foods, Inc. (NASDAQ:DMND).

Diamond Foods, Inc. (NASDAQ:DMND) shareholders have witnessed an increase in hedge fund interest in recent months. At the end of this article we will also compare DMND to other stocks including Benefitfocus Inc (NASDAQ:BNFT), Qualys Inc (NASDAQ:QLYS), and TowneBank (NASDAQ:TOWN) to get a better sense of its popularity.

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In the eyes of most shareholders, hedge funds are perceived as unimportant, old financial vehicles of yesteryear. While there are over 8000 funds in operation today, Hedge fund experts at Insider Monkey look at the aristocrats of this group, about 700 funds. These investment experts watch over bulk of all hedge funds’ total capital, and by monitoring their inimitable equity investments, Insider Monkey has spotted a number of investment strategies that have historically beaten Mr. Market. Insider Monkey’s small-cap hedge fund strategy outstripped the S&P 500 index by 12 percentage points annually for a decade in their back tests.

Now, we’re going to take a glance at the new action surrounding Diamond Foods, Inc. (NASDAQ:DMND).

How are hedge funds trading Diamond Foods, Inc. (NASDAQ:DMND)?

Heading into Q4, a total of 20 of the hedge funds tracked by Insider Monkey were long in this stock, a change of 18% from the previous quarter. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were upping their holdings meaningfully.

When looking at the hedgies followed by Insider Monkey, Oaktree Capital Management, managed by Howard Marks, holds the largest position in Diamond Foods, Inc. (NASDAQ:DMND). Oaktree Capital Management has a $136.4 million position in the stock, comprising 1.8% of its 13F portfolio. Coming in second is Citadel Investment Group, managed by Ken Griffin, which held a $28.1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other members of the smart money with similar optimism encompass Mario Gabelli’s GAMCO Investors, John Orrico’s Water Island Capital and Jim Simons’s Renaissance Technologies.

Now, key hedge funds were leading the bulls’ herd. Water Island Capital, managed by John Orrico, created the largest position in Diamond Foods, Inc. (NASDAQ:DMND). Water Island Capital had $8.7 million invested in the company at the end of the quarter. Gabriel Plotkin’s Melvin Capital Management also initiated a $6.2 million position during the quarter. The following funds were also among the new DMND investors: Alexander Mitchell’s Scopus Asset Management, Jacob Gottlieb’s Visium Asset Management, and Joel Greenblatt’s Gotham Asset Management.

Let’s also review hedge fund activity in other stocks similar to Diamond Foods, Inc. (NASDAQ:DMND). We will take a look at Benefitfocus Inc (NASDAQ:BNFT), Qualys Inc (NASDAQ:QLYS), TowneBank (NASDAQ:TOWN), and iKang Healthcare Group Inc (ADR) (NASDAQ:KANG). This group of stocks’ market valuations match DMND’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BNFT 8 18520 0
QLYS 18 54963 5
TOWN 8 36119 0
KANG 8 38770 -5

As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $37 million. Qualys Inc (NASDAQ:QLYS) is the most popular stock in this table. On the other hand Benefitfocus Inc (NASDAQ:BNFT) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Diamond Foods, Inc. (NASDAQ:DMND) is almost twice as popular. Considering that hedge funds are fond of this stock and new hedge funds flocking into it, it may be a good idea to analyze it in detail and potentially include it in your portfolio.