Should You Avoid Dana Inc (DAN)?

Reputable billionaire investors such as Nelson Peltz and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.

Is Dana Inc (NYSE:DAN) a healthy stock for your portfolio? Prominent investors are in a bearish mood. The number of long hedge fund positions fell by 1 in recent months. DAN was in 26 hedge funds’ portfolios at the end of September. There were 27 hedge funds in our database with DAN holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as DineEquity Inc (NYSE:DIN), Eaton Vance Ltd Duration Income Fund (NYSEMKT:EVV), and Semtech Corporation (NASDAQ:SMTC) to gather more data points.

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.

With all of this in mind, let’s view the key action encompassing Dana Inc (NYSE:DAN).

What does the smart money think about Dana Inc (NYSE:DAN)?

Heading into the fourth quarter of 2016, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a drop of 4% from one quarter earlier. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Mario Gabelli’s GAMCO Investors has the largest position in Dana Inc (NYSE:DAN), worth close to $85 million, comprising 0.6% of its total 13F portfolio. Sitting at the No. 2 spot is Richard S. Pzena of Pzena Investment Management, with a $71.3 million position; 0.4% of its 13F portfolio is allocated to the company. Other peers that hold long positions include Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC, Cliff Asness’s AQR Capital Management and Steve Cohen’s Point72 Asset Management.

Because Dana Inc (NYSE:DAN) has faced a decline in interest from hedge fund managers, it’s safe to say that there were a few hedge funds that decided to sell off their positions entirely last quarter. Interestingly, Phill Gross and Robert Atchinson’s Adage Capital Management said goodbye to the largest investment of all the hedgies tracked by Insider Monkey, worth an estimated $6.5 million in stock, and Jim Simons’s Renaissance Technologies was right behind this move, as the fund dumped about $4.1 million worth of DAN shares. These transactions are intriguing to say the least, as total hedge fund interest fell by 1 fund last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Dana Inc (NYSE:DAN) but similarly valued. These stocks are DineEquity Inc (NYSE:DIN), Eaton Vance Ltd Duration Income Fund (NYSEMKT:EVV), Semtech Corporation (NASDAQ:SMTC), and Astoria Financial Corp (NYSE:AF). This group of stocks’ market caps are similar to DAN’s market cap.

As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $74 million. That figure was $381 million in DAN’s case. Semtech Corporation (NASDAQ:SMTC) is the most popular stock in this table. On the other hand Eaton Vance Ltd Duration Income Fund (NYSEMKT:EVV) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Dana Inc (NYSE:DAN) 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.

Disclosure: none.