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 have processed the filings of the more than 817 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their September 30 holdings, data that is available nowhere else. Should you consider Descartes Systems Group (NASDAQ:DSGX) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.
Is DSGX a good stock to buy now? Prominent investors were betting on the stock. The number of bullish hedge fund bets rose by 2 recently. Descartes Systems Group (NASDAQ:DSGX) was in 12 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 14. Our calculations also showed that DSGX 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 10 hedge funds in our database with DSGX positions at the end of the second quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
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 let’s take a look at the recent hedge fund action surrounding Descartes Systems Group (NASDAQ:DSGX).
Do Hedge Funds Think DSGX Is A Good Stock To Buy Now?
At the end of September, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 20% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards DSGX over the last 21 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Echo Street Capital Management was the largest shareholder of Descartes Systems Group (NASDAQ:DSGX), with a stake worth $73 million reported as of the end of September. Trailing Echo Street Capital Management was Praesidium Investment Management Company, which amassed a stake valued at $54.2 million. Royce & Associates, Renaissance Technologies, and Arrowstreet Capital 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 Praesidium Investment Management Company allocated the biggest weight to Descartes Systems Group (NASDAQ:DSGX), around 3.23% of its 13F portfolio. Bishop Rock Capital is also relatively very bullish on the stock, designating 2.09 percent of its 13F equity portfolio to DSGX.
As one would reasonably expect, specific money managers were breaking ground themselves. Balyasny Asset Management, managed by Dmitry Balyasny, initiated the most valuable position in Descartes Systems Group (NASDAQ:DSGX). Balyasny Asset Management had $6.1 million invested in the company at the end of the quarter. Noam Gottesman’s GLG Partners also initiated a $1 million position during the quarter. The following funds were also among the new DSGX investors: Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners and Paul Marshall and Ian Wace’s Marshall Wace LLP.
Let’s now take a look at hedge fund activity in other stocks similar to Descartes Systems Group (NASDAQ:DSGX). We will take a look at American Campus Communities, Inc. (NYSE:ACC), Sasol Limited (NYSE:SSL), Prosperity Bancshares, Inc. (NYSE:PB), Zions Bancorporation, National Association (NASDAQ:ZION), Cenovus Energy Inc (NYSE:CVE), Nevro Corp (NYSE:NVRO), and Skechers USA Inc (NYSE:SKX). This group of stocks’ market values are similar to DSGX’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.4 hedge funds with bullish positions and the average amount invested in these stocks was $303 million. That figure was $212 million in DSGX’s case. Nevro Corp (NYSE:NVRO) is the most popular stock in this table. On the other hand Sasol Limited (NYSE:SSL) is the least popular one with only 5 bullish hedge fund positions. Descartes Systems Group (NASDAQ:DSGX) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for DSGX is 44.8. 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. 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 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 surpassed the market again by 16.2 percentage points. Unfortunately DSGX wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); DSGX investors were disappointed as the stock returned 0.4% since the end of September (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.