Is DRQ A Good Stock To Buy Now?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Dril-Quip, Inc. (NYSE:DRQ).

Is DRQ a good stock to buy? Dril-Quip, Inc. (NYSE:DRQ) has seen an increase in support from the world’s most elite money managers recently. Dril-Quip, Inc. (NYSE:DRQ) was in 14 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 24. There were 10 hedge funds in our database with DRQ positions at the end of the second quarter. Our calculations also showed that DRQ 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.

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 66 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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.


Ken Fisher of Fisher Asset Management

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. Keeping this in mind we’re going to take a peek at the latest hedge fund action encompassing Dril-Quip, Inc. (NYSE:DRQ).

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

At third quarter’s end, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 40% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in DRQ over the last 21 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Fisher Asset Management, managed by Ken Fisher, holds the most valuable position in Dril-Quip, Inc. (NYSE:DRQ). Fisher Asset Management has a $33.9 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Coming in second is GAMCO Investors, led by Mario Gabelli, holding a $14.1 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Remaining peers that are bullish encompass Ken Griffin’s Citadel Investment Group, Israel Englander’s Millennium Management and Renaissance Technologies. In terms of the portfolio weights assigned to each position GAMCO Investors allocated the biggest weight to Dril-Quip, Inc. (NYSE:DRQ), around 0.16% of its 13F portfolio. Polaris Capital Management is also relatively very bullish on the stock, setting aside 0.04 percent of its 13F equity portfolio to DRQ.

Consequently, some big names have been driving this bullishness. Renaissance Technologies, assembled the most outsized position in Dril-Quip, Inc. (NYSE:DRQ). Renaissance Technologies 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 initiated a $0.6 million position during the quarter. The other funds with new positions in the stock are Michael Gelband’s ExodusPoint Capital, Matthew Hulsizer’s PEAK6 Capital Management, and Anand Parekh’s Alyeska Investment Group.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Dril-Quip, Inc. (NYSE:DRQ) but similarly valued. These stocks are Abercrombie & Fitch Co. (NYSE:ANF), Smith & Wesson Brands, Inc. (NASDAQ:SWBI), Ultra Clean Holdings Inc (NASDAQ:UCTT), First Busey Corporation (NASDAQ:BUSE), iTeos Therapeutics, Inc. (NASDAQ:ITOS), Redwood Trust, Inc. (NYSE:RWT), and Eagle Bancorp, Inc. (NASDAQ:EGBN). This group of stocks’ market valuations resemble DRQ’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ANF 27 239985 -7
SWBI 18 103081 -6
UCTT 20 93359 -2
BUSE 15 31527 2
ITOS 11 191852 11
RWT 15 42065 -3
EGBN 13 16947 -2
Average 17 102688 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $103 million. That figure was $61 million in DRQ’s case. Abercrombie & Fitch Co. (NYSE:ANF) is the most popular stock in this table. On the other hand iTeos Therapeutics, Inc. (NASDAQ:ITOS) is the least popular one with only 11 bullish hedge fund positions. Dril-Quip, Inc. (NYSE:DRQ) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for DRQ is 35.9. 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. A small number of hedge funds were also right about betting on DRQ as the stock returned 35.3% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.

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