In this article we will analyze whether Donegal Group Inc (NASDAQ:DGICA) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.
Is Donegal Group (DGICA) a good stock to buy now? Investors who are in the know were taking an optimistic view. The number of long hedge fund bets went up by 3 in recent months. Donegal Group Inc (NASDAQ:DGICA) was in 7 hedge funds’ portfolios at the end of September. The all time high for this statistics is 7. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that DGICA 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). There were 4 hedge funds in our database with DGICA positions at the end of the second quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. With all of this in mind we’re going to take a look at the key hedge fund action surrounding Donegal Group Inc (NASDAQ:DGICA).
What have hedge funds been doing with Donegal Group Inc (NASDAQ:DGICA)?
At the end of September, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 75% from one quarter earlier. By comparison, 7 hedge funds held shares or bullish call options in DGICA 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.
Among these funds, Renaissance Technologies held the most valuable stake in Donegal Group Inc (NASDAQ:DGICA), which was worth $8.3 million at the end of the third quarter. On the second spot was Zebra Capital Management which amassed $0.9 million worth of shares. Winton Capital Management, Arrowstreet Capital, and Citadel Investment Group 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 Zebra Capital Management allocated the biggest weight to Donegal Group Inc (NASDAQ:DGICA), around 1.44% of its 13F portfolio. Minerva Advisors is also relatively very bullish on the stock, dishing out 0.15 percent of its 13F equity portfolio to DGICA.
As one would reasonably expect, some big names were leading the bulls’ herd. Zebra Capital Management, managed by Roger Ibbotson, initiated the biggest position in Donegal Group Inc (NASDAQ:DGICA). Zebra Capital Management had $0.9 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $0.7 million investment in the stock during the quarter. The only other fund with a new position in the stock is Ken Griffin’s Citadel Investment Group.
Let’s also examine hedge fund activity in other stocks similar to Donegal Group Inc (NASDAQ:DGICA). We will take a look at FRP Holdings Inc (NASDAQ:FRPH), Sterling Construction Company, Inc. (NASDAQ:STRL), American Vanguard Corp. (NYSE:AVD), NexTier Oilfield Solutions Inc. (NYSE:NEX), Select Energy Services, Inc. (NYSE:WTTR), Kosmos Energy Ltd (NYSE:KOS), and Tristate Capital Holdings Inc (NASDAQ:TSC). This group of stocks’ market values resemble DGICA’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 13.3 hedge funds with bullish positions and the average amount invested in these stocks was $42 million. That figure was $12 million in DGICA’s case. NexTier Oilfield Solutions Inc. (NYSE:NEX) is the most popular stock in this table. On the other hand FRP Holdings Inc (NASDAQ:FRPH) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Donegal Group Inc (NASDAQ:DGICA) is even less popular than FRPH. Our overall hedge fund sentiment score for DGICA is 38. 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. Hedge funds dodged a bullet by taking a bearish stance towards DGICA. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd but managed to beat the market again by 16 percentage points. Unfortunately DGICA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); DGICA investors were disappointed as the stock returned 1.6% since the end of the third quarter (through 12/2) 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 so far in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.