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Is Douglas Dynamics Inc (PLOW) Going to Burn These Hedge Funds?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Douglas Dynamics Inc (NYSE:PLOW).

Douglas Dynamics Inc (NYSE:PLOW) was in 9 hedge funds’ portfolios at the end of the first quarter of 2020. PLOW investors should be aware of a decrease in hedge fund sentiment in recent months. There were 12 hedge funds in our database with PLOW positions at the end of the previous quarter. Our calculations also showed that PLOW isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

NAVELLIER & ASSOCIATES

Louis Navellier of Navellier & Associates

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to check out the fresh hedge fund action surrounding Douglas Dynamics Inc (NYSE:PLOW).

How are hedge funds trading Douglas Dynamics Inc (NYSE:PLOW)?

At Q1’s end, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from one quarter earlier. On the other hand, there were a total of 11 hedge funds with a bullish position in PLOW a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Israel Englander’s Millennium Management has the biggest position in Douglas Dynamics Inc (NYSE:PLOW), worth close to $5.3 million, comprising less than 0.1%% of its total 13F portfolio. The second most bullish fund manager is Citadel Investment Group, managed by Ken Griffin, which holds a $3.2 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism contain Louis Navellier’s Navellier & Associates, John Overdeck and David Siegel’s Two Sigma Advisors and Peter S. Park’s Park West Asset Management. In terms of the portfolio weights assigned to each position Navellier & Associates allocated the biggest weight to Douglas Dynamics Inc (NYSE:PLOW), around 0.74% of its 13F portfolio. Park West Asset Management is also relatively very bullish on the stock, setting aside 0.04 percent of its 13F equity portfolio to PLOW.

Since Douglas Dynamics Inc (NYSE:PLOW) has faced falling interest from the entirety of the hedge funds we track, it’s safe to say that there was a specific group of hedgies that decided to sell off their entire stakes last quarter. It’s worth mentioning that Richard Driehaus’s Driehaus Capital dumped the largest position of the “upper crust” of funds watched by Insider Monkey, totaling close to $6.8 million in stock, and Minhua Zhang’s Weld Capital Management was right behind this move, as the fund cut about $0.8 million worth. These transactions are interesting, as total hedge fund interest fell by 3 funds last quarter.

Let’s also examine hedge fund activity in other stocks similar to Douglas Dynamics Inc (NYSE:PLOW). We will take a look at CTS Corporation (NYSE:CTS), Ameresco Inc (NYSE:AMRC), Huami Corporation (NYSE:HMI), and QAD Inc. (NASDAQ:QADA). All of these stocks’ market caps resemble PLOW’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CTS 9 67636 -1
AMRC 11 46335 3
HMI 5 20451 -4
QADA 16 120856 1
Average 10.25 63820 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $64 million. That figure was $15 million in PLOW’s case. QAD Inc. (NASDAQ:QADA) is the most popular stock in this table. On the other hand Huami Corporation (NYSE:HMI) is the least popular one with only 5 bullish hedge fund positions. Douglas Dynamics Inc (NYSE:PLOW) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.4% in 2020 through June 22nd and surpassed the market by 15.9 percentage points. Unfortunately PLOW wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); PLOW investors were disappointed as the stock returned 1.3% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 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.