Was The Smart Money Right About DraftKings Inc. (DKNG)?

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in DraftKings Inc. (NASDAQ:DKNG)? The smart money sentiment can provide an answer to this question.

DraftKings Inc. (NASDAQ:DKNG) was in 48 hedge funds’ portfolios at the end of December. The all time high for this statistic is 53. DKNG has experienced an increase in enthusiasm from smart money recently. There were 43 hedge funds in our database with DKNG positions at the end of the third quarter. Our calculations also showed that DKNG isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

In the 21st century investor’s toolkit there are numerous methods stock market investors put to use to analyze stocks. Some of the less utilized methods are hedge fund and insider trading indicators. We have shown that, historically, those who follow the best picks of the elite fund managers can outpace the broader indices by a superb margin (see the details here). Also, our monthly newsletter’s portfolio of long stock picks returned 197% since March 2017 (through March 2021) and beat the S&P 500 Index by 124 percentage points. You can download a sample issue of this newsletter on our website .

Billionaire David Siegel's Top 10 Stock Picks

David Siegel of Two Sigma Advisors

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind let’s take a gander at the latest hedge fund action surrounding DraftKings Inc. (NASDAQ:DKNG).

Do Hedge Funds Think DKNG Is A Good Stock To Buy Now?

At the end of the fourth quarter, a total of 48 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 12% from the third quarter of 2020. The graph below displays the number of hedge funds with bullish position in DKNG over the last 22 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Tybourne Capital Management held the most valuable stake in DraftKings Inc. (NASDAQ:DKNG), which was worth $89.8 million at the end of the fourth quarter. On the second spot was Granger Management which amassed $41.6 million worth of shares. Balyasny Asset Management, Millennium Management, and Black-and-White Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Granger Management allocated the biggest weight to DraftKings Inc. (NASDAQ:DKNG), around 5.24% of its 13F portfolio. Boardman Bay Capital Management is also relatively very bullish on the stock, dishing out 2.98 percent of its 13F equity portfolio to DKNG.

As one would reasonably expect, some big names were leading the bulls’ herd. Granger Management, managed by Geraldine McManus and Andrew Walter, assembled the most outsized position in DraftKings Inc. (NASDAQ:DKNG). Granger Management had $41.6 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $30.4 million position during the quarter. The following funds were also among the new DKNG investors: Seth Wunder’s Black-and-White Capital, Paul Marshall and Ian Wace’s Marshall Wace LLP, and John Overdeck and David Siegel’s Two Sigma Advisors.

Let’s now review hedge fund activity in other stocks similar to DraftKings Inc. (NASDAQ:DKNG). These stocks are Dover Corporation (NYSE:DOV), HubSpot Inc (NYSE:HUBS), Clarivate Plc (NYSE:CCC), The Cooper Companies, Inc. (NYSE:COO), Conagra Brands, Inc. (NYSE:CAG), Broadridge Financial Solutions, Inc. (NYSE:BR), and Martin Marietta Materials, Inc. (NYSE:MLM). This group of stocks’ market valuations are closest to DKNG’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DOV 32 738937 -8
HUBS 52 1561960 12
CCC 40 5223432 3
COO 31 1349415 1
CAG 28 634446 -7
BR 25 244137 -8
MLM 41 2010592 3
Average 35.6 1680417 -0.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.6 hedge funds with bullish positions and the average amount invested in these stocks was $1680 million. That figure was $399 million in DKNG’s case. HubSpot Inc (NYSE:HUBS) is the most popular stock in this table. On the other hand Broadridge Financial Solutions, Inc. (NYSE:BR) is the least popular one with only 25 bullish hedge fund positions. DraftKings Inc. (NASDAQ:DKNG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DKNG is 79.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. Hedge funds were also right about betting on DKNG as the stock returned 21.7% since the end of Q4 (through 4/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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