Is DKNG A Good Stock To Buy Now?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 817 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of September 30th, about a month before the elections. In this article we look at what those investors think of DraftKings Inc. (NASDAQ:DKNG).

Is DKNG a good stock to buy now? The best stock pickers were getting less optimistic. The number of bullish hedge fund positions fell by 10 recently. DraftKings Inc. (NASDAQ:DKNG) was in 43 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 53. Our calculations also showed that DKNG isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.

To the average investor there are several gauges stock market investors put to use to size up stocks. A pair of the most under-the-radar gauges are hedge fund and insider trading moves. Our experts have shown that, historically, those who follow the top picks of the elite investment managers can outperform the broader indices by a significant amount (see the details here).

Rajiv Jain of GQG Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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. Now we’re going to take a glance at the latest hedge fund action surrounding DraftKings Inc. (NASDAQ:DKNG).

Do Hedge Funds Think DKNG Is A Good Stock To Buy Now?

At the end of the third quarter, a total of 43 of the hedge funds tracked by Insider Monkey were long this stock, a change of -19% from one quarter earlier. By comparison, 7 hedge funds held shares or bullish call options in DKNG a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is DKNG A Good Stock To Buy?

More specifically, Park West Asset Management was the largest shareholder of DraftKings Inc. (NASDAQ:DKNG), with a stake worth $224.4 million reported as of the end of September. Trailing Park West Asset Management was GQG Partners, which amassed a stake valued at $176.5 million. Soros Fund Management, Citadel Investment Group, and Tybourne Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Park West Asset Management allocated the biggest weight to DraftKings Inc. (NASDAQ:DKNG), around 8.69% of its 13F portfolio. Diker Management is also relatively very bullish on the stock, earmarking 3.67 percent of its 13F equity portfolio to DKNG.

Due to the fact that DraftKings Inc. (NASDAQ:DKNG) has faced declining sentiment from hedge fund managers, we can see that there exists a select few money managers that decided to sell off their entire stakes last quarter. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the biggest investment of the 750 funds watched by Insider Monkey, comprising about $48.8 million in stock, and Brandon Haley’s Holocene Advisors was right behind this move, as the fund sold off about $26.1 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 10 funds last quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as DraftKings Inc. (NASDAQ:DKNG) but similarly valued. These stocks are PPL Corporation (NYSE:PPL), State Street Corporation (NYSE:STT), West Pharmaceutical Services Inc. (NYSE:WST), Ecopetrol S.A. (NYSE:EC), Arthur J. Gallagher & Co. (NYSE:AJG), Alexandria Real Estate Equities Inc (NYSE:ARE), and Nasdaq, Inc. (NASDAQ:NDAQ). This group of stocks’ market caps match DKNG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PPL 21 216181 -4
STT 34 493236 -2
WST 41 375693 14
EC 7 87102 -4
AJG 35 320853 6
ARE 25 168133 7
NDAQ 32 220480 7
Average 27.9 268811 3.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.9 hedge funds with bullish positions and the average amount invested in these stocks was $269 million. That figure was $822 million in DKNG’s case. West Pharmaceutical Services Inc. (NYSE:WST) is the most popular stock in this table. On the other hand Ecopetrol S.A. (NYSE:EC) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks DraftKings Inc. (NASDAQ:DKNG) is more popular among hedge funds. Our overall hedge fund sentiment score for DKNG is 69.3. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. Unfortunately DKNG wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on DKNG were disappointed as the stock returned -13.6% since the end of the third quarter (through 12/8) 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 most of these stocks already outperformed the market in 2020.

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Disclosure: None. This article was originally published at Insider Monkey.