Were Hedge Funds Right About Dumping DMC Global Inc. (BOOM)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of DMC Global Inc. (NASDAQ:BOOM) based on that data and determine whether they were really smart about the stock.

DMC Global Inc. (NASDAQ:BOOM) was in 12 hedge funds’ portfolios at the end of the first quarter of 2020. BOOM has seen a decrease in activity from the world’s largest hedge funds of late. There were 20 hedge funds in our database with BOOM positions at the end of the previous quarter. Our calculations also showed that BOOM isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

At the moment there are tons of gauges investors put to use to analyze publicly traded companies. A duo of the best gauges are hedge fund and insider trading indicators. Our experts have shown that, historically, those who follow the top picks of the elite fund managers can outpace the market by a solid amount (see the details here).

David Harding

David Harding of Winton Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to analyze the recent hedge fund action regarding DMC Global Inc. (NASDAQ:BOOM).

What does smart money think about DMC Global Inc. (NASDAQ:BOOM)?

At the end of the first quarter, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -40% from the previous quarter. By comparison, 14 hedge funds held shares or bullish call options in BOOM a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Chuck Royce’s Royce & Associates has the largest position in DMC Global Inc. (NASDAQ:BOOM), worth close to $6.8 million, comprising 0.1% of its total 13F portfolio. The second largest stake is held by Encompass Capital Advisors, led by Todd J. Kantor, holding a $4.8 million position; the fund has 0.5% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that are bullish include David Harding’s Winton Capital Management, Peter Schliemann’s Rutabaga Capital Management and Renaissance Technologies. In terms of the portfolio weights assigned to each position Rutabaga Capital Management allocated the biggest weight to DMC Global Inc. (NASDAQ:BOOM), around 1.6% of its 13F portfolio. Encompass Capital Advisors is also relatively very bullish on the stock, setting aside 0.52 percent of its 13F equity portfolio to BOOM.

Judging by the fact that DMC Global Inc. (NASDAQ:BOOM) has faced a decline in interest from the entirety of the hedge funds we track, we can see that there is a sect of hedgies who were dropping their entire stakes heading into Q4. It’s worth mentioning that Till Bechtolsheimer’s Arosa Capital Management said goodbye to the biggest investment of the “upper crust” of funds monitored by Insider Monkey, worth an estimated $6.5 million in stock, and Mark Broach’s Manatuck Hill Partners was right behind this move, as the fund dropped about $6.4 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 8 funds heading into Q4.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as DMC Global Inc. (NASDAQ:BOOM) but similarly valued. These stocks are Peapack-Gladstone Financial Corp (NASDAQ:PGC), Organogenesis Holdings Inc. (NASDAQ:ORGO), NGL Energy Partners LP (NYSE:NGL), and Select Energy Services, Inc. (NYSE:WTTR). All of these stocks’ market caps resemble BOOM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PGC 18 36066 1
ORGO 5 2903 -3
NGL 4 3343 0
WTTR 16 18497 0
Average 10.75 15202 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $15 million. That figure was $22 million in BOOM’s case. Peapack-Gladstone Financial Corp (NASDAQ:PGC) is the most popular stock in this table. On the other hand NGL Energy Partners LP (NYSE:NGL) is the least popular one with only 4 bullish hedge fund positions. DMC Global Inc. (NASDAQ:BOOM) 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately BOOM wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on BOOM were disappointed as the stock returned 19.9% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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