Should You Avoid Dicks Sporting Goods Inc (DKS)?

Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we follow the hedge fund activity in the small-cap space.

Dicks Sporting Goods Inc (NYSE:DKS) investors should pay attention to a decrease in activity from the world’s largest hedge funds lately. 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 Parsley Energy Inc (NYSE:PE), EPR Properties (NYSE:EPR), and Weingarten Realty Investors (NYSE:WRI) 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, we’re going to take a look at the fresh action encompassing Dicks Sporting Goods Inc (NYSE:DKS).

How have hedgies been trading Dicks Sporting Goods Inc (NYSE:DKS)?

Heading into the fourth quarter of 2016, a total of 41 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from the second quarter of 2016. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, D. E. Shaw’s D E Shaw has the largest position in Dicks Sporting Goods Inc (NYSE:DKS), worth close to $110.3 million, accounting for 0.2% of its total 13F portfolio. The second largest stake is held by Glenhill Advisors, managed by Glenn J. Krevlin, which holds a $94.6 million position; the fund has 5.7% of its 13F portfolio invested in the stock. Remaining peers that hold long positions encompass Dmitry Balyasny’s Balyasny Asset Management, Jim Simons’ Renaissance Technologies and John Lykouretzos’ Hoplite Capital Management.

Because Dicks Sporting Goods Inc (NYSE:DKS) has witnessed bearish sentiment from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of money managers that elected to cut their entire stakes by the end of the third quarter. At the top of the heap, Josh Resnick’s Jericho Capital Asset Management cut the biggest stake of all the hedgies monitored by Insider Monkey, comprising an estimated $58.1 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also said goodbye to its stock, about $9.6 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 3 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Dicks Sporting Goods Inc (NYSE:DKS) but similarly valued. We will take a look at Parsley Energy Inc (NYSE:PE), EPR Properties (NYSE:EPR), Weingarten Realty Investors (NYSE:WRI), and Opko Health Inc. (NYSE:OPK). This group of stocks’ market values resemble DKS’s market value.

As you can see these stocks had an average of 24.25 hedge funds with bullish positions and the average amount invested in these stocks was $357 million. That figure was $690 million in DKS’s case. Parsley Energy Inc (NYSE:PE) is the most popular stock in this table. On the other hand Weingarten Realty Investors (NYSE:WRI) is the least popular one with only 10 bullish hedge fund positions. Dicks Sporting Goods Inc (NYSE:DKS) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard PE might be a better candidate to consider a long position.