Should You Buy DHI Group Inc (DHX)?

Hedge funds run by legendary names like Nelson Peltz and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant out-performance. These stocks have been on a tear since the end of June, outperforming large-cap index funds by more than 10 percentage points. That’s why we pay special attention to hedge fund activity in these stocks.

Hedge fund interest in DHI Group Inc (NYSE:DHX) shares was flat during the third quarter. This is usually a negative indicator. 17 hedge funds that we track owned the stock on September 30, same as on June 30. At the end of this article we will also compare DHX to other stocks including Flexion Therapeutics Inc (NASDAQ:FLXN), Natural Health Trends Corp. (NASDAQ:NHTC), and Bill Barrett Corporation (NYSE:BBG) 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.

How have hedgies been trading DHI Group Inc (NYSE:DHX)?

At Q3’s end, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, unchanged from one quarter earlier. On the other hand, there were a total of 21 hedge funds with a bullish position in DHX at the beginning of this year, so ownership of the stock has fallen by nearly 20% this year. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Jim Simons’ Renaissance Technologies has the most valuable position in DHI Group Inc (NYSE:DHX), worth close to $8.5 million. The second most bullish fund manager is D E Shaw, founded by David E. Shaw, which holds a $5.6 million position. Other members of the smart money that hold long positions comprise Cliff Asness’ AQR Capital Management, Ken Fisher’s Fisher Asset Management, and Mark Wolfson and Jamie Alexander’s Jasper Ridge Partners. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

We view hedge fund activity in the stock as unfavorable, but in this case there was only a single hedge fund selling its entire position: Stevens Capital Management. One hedge fund selling its entire position doesn’t always imply bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified the stock as a viable investment and initiated a position in the stock (that fund was Nine Chapters Capital Management).

Let’s also examine hedge fund activity in other stocks similar to DHI Group Inc (NYSE:DHX). We will take a look at Flexion Therapeutics Inc (NASDAQ:FLXN), Natural Health Trends Corp. (NASDAQ:NHTC), Bill Barrett Corporation (NYSE:BBG), and IXYS Corporation (NASDAQ:IXYS). This group of stocks’ market values match DHX’s market value.

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 $51 million. That figure was $29 million in DHX’s case. Bill Barrett Corporation (NYSE:BBG) is the most popular stock in this table. On the other hand Flexion Therapeutics Inc (NASDAQ:FLXN) is the least popular one with only 8 bullish hedge fund positions. DHI Group Inc (NYSE:DHX) 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 BBG might be a better candidate to consider taking a long position in.

Disclosure: None