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Is DXP Enterprises Inc (DXPE) Going to Burn These Hedge Funds?

With the third-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the fourth quarter. One of these stocks was DXP Enterprises Inc (NASDAQ:DXPE).

Is DXP Enterprises Inc (NASDAQ:DXPE) a buy right now? Prominent investors are in an optimistic mood. The number of bullish hedge fund positions inched up by 2 recently. Our calculations also showed that DXPE isn’t among the 30 most popular stocks among hedge funds.

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 market by 18 percentage points since May 2014 through December 3, 2018 (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.

CITADEL INVESTMENT GROUP

Let’s review the key hedge fund action regarding DXP Enterprises Inc (NASDAQ:DXPE).

How are hedge funds trading DXP Enterprises Inc (NASDAQ:DXPE)?

Heading into the fourth quarter of 2018, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards DXPE over the last 13 quarters. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

No of Hedge Funds With DXPE Positions

Among these funds, Nantahala Capital Management held the most valuable stake in DXP Enterprises Inc (NASDAQ:DXPE), which was worth $38.7 million at the end of the third quarter. On the second spot was Millennium Management which amassed $5 million worth of shares. Moreover, AlphaOne Capital Partners, Citadel Investment Group, and Renaissance Technologies were also bullish on DXP Enterprises Inc (NASDAQ:DXPE), allocating a large percentage of their portfolios to this stock.

Consequently, key hedge funds have jumped into DXP Enterprises Inc (NASDAQ:DXPE) headfirst. Renaissance Technologies, managed by Jim Simons, initiated the most valuable position in DXP Enterprises Inc (NASDAQ:DXPE). Renaissance Technologies had $1.5 million invested in the company at the end of the quarter. Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital also made a $0.5 million investment in the stock during the quarter.

Let’s go over hedge fund activity in other stocks similar to DXP Enterprises Inc (NASDAQ:DXPE). These stocks are Upland Software Inc (NASDAQ:UPLD), Changyou.Com Ltd (NASDAQ:CYOU), MAG Silver Corporation (NYSE:MAG), and First Foundation Inc (NASDAQ:FFWM). This group of stocks’ market caps are similar to DXPE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
UPLD 20 102948 -1
CYOU 6 32636 -3
MAG 13 27031 2
FFWM 13 107757 1
Average 13 67593 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $68 million. That figure was $55 million in DXPE’s case. Upland Software Inc (NASDAQ:UPLD) is the most popular stock in this table. On the other hand Changyou.Com Ltd (NASDAQ:CYOU) is the least popular one with only 6 bullish hedge fund positions. DXP Enterprises Inc (NASDAQ:DXPE) 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. In this regard UPLD might be a better candidate to consider a long position.

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

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