Is The Dow Chemical Company (DOW) A Good Stock To Buy?

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 over the past few 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 hedge funds do have great stock picking skills, so let’s take a glance at the smart money sentiment towards The Dow Chemical Company (NYSE:DOW).

So, is The Dow Chemical Company (NYSE:DOW) a bargain? Hedge funds are getting less bullish, since the number of investors holding shares inched down by one to 47 during the third quarter. At the end of this article we will also compare DOW to other stocks including HDFC Bank Limited (ADR) (NYSE:HDB), BT Group plc (ADR) (NYSE:BT), and Statoil ASA (ADR) (NYSE:STO) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

Keeping this in mind, let’s take a glance at the key action regarding The Dow Chemical Company (NYSE:DOW).

What have hedge funds been doing with The Dow Chemical Company (NYSE:DOW)?

At the end of the third quarter, 47 funds tracked by Insider Monkey were bullish on The Dow Chemical Company (NYSE:DOW), a decline of 2% from the previous quarter. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Third Point, managed by Dan Loeb, holds the most valuable position in The Dow Chemical Company (NYSE:DOW). Third Point has a $1.04 billion position in the stock, comprising 9% of its 13F portfolio. The second largest stake is held by Larry Robbins’ Glenview Capital, with a $305.9 million position; the fund has 2.2% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors with similar optimism contain John Overdeck and David Siegel’s Two Sigma Advisors, Cliff Asness’ AQR Capital Management, and John A. Levin’s Levin Capital Strategies.

Because The Dow Chemical Company (NYSE:DOW) has faced declining sentiment from the aggregate hedge fund industry, it’s safe to say that there exists a select few fund managers that slashed their full holdings by the end of the third quarter. Interestingly, Daniel S. Och’s OZ Management dropped the largest stake of all the hedgies tracked by Insider Monkey, totaling an estimated $47.8 million in call options. Daniel S. Och’s fund, OZ Management, also dropped its call options, about $29.1 million worth.

Let’s check out hedge fund activity in other stocks similar to The Dow Chemical Company (NYSE:DOW). These stocks are HDFC Bank Limited (ADR) (NYSE:HDB), BT Group plc (ADR) (NYSE:BT), Statoil ASA (ADR) (NYSE:STO), and ConocoPhillips (NYSE:COP). This group of stocks’ market caps are closest to DOW’s market cap.

As you can see these stocks had an average of 20 investors tracked by us with bullish positions and the average amount invested in these stocks was $743 million. That figure was $2.69 billion in DOW’s case. ConocoPhillips (NYSE:COP) is the most popular stock in this table. On the other hand BT Group plc (ADR) (NYSE:BT) is the least popular one with only seven funds holding shares. Compared to these stocks The Dow Chemical Company (NYSE:DOW) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.