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Were Hedge Funds Right About Dumping Dril-Quip, Inc. (DRQ)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Dril-Quip, Inc. (NYSE:DRQ) and determine whether the smart money was really smart about this stock.

Dril-Quip, Inc. (NYSE:DRQ) investors should be aware of a decrease in enthusiasm from smart money recently. DRQ was in 13 hedge funds’ portfolios at the end of the first quarter of 2020. There were 21 hedge funds in our database with DRQ positions at the end of the previous quarter. Our calculations also showed that DRQ 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.

In the eyes of most stock holders, hedge funds are viewed as worthless, old financial tools of the past. While there are greater than 8000 funds trading at the moment, Our researchers choose to focus on the crème de la crème of this club, approximately 850 funds. Most estimates calculate that this group of people administer most of the hedge fund industry’s total capital, and by following their finest picks, Insider Monkey has discovered a number of investment strategies that have historically outrun the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

SAC CAPITAL ADVISORS

Steven Cohen of Point72 Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 10 biggest gold mining companies to identify emerging trends that are likely to lead to 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. 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. With all of this in mind we’re going to go over the key hedge fund action regarding Dril-Quip, Inc. (NYSE:DRQ).

How are hedge funds trading Dril-Quip, Inc. (NYSE:DRQ)?

At the end of the first quarter, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -38% from the previous quarter. The graph below displays the number of hedge funds with bullish position in DRQ over the last 18 quarters. With hedge funds’ capital changing hands, there exists a few notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

Among these funds, Fisher Asset Management held the most valuable stake in Dril-Quip, Inc. (NYSE:DRQ), which was worth $44.8 million at the end of the third quarter. On the second spot was GAMCO Investors which amassed $19.4 million worth of shares. Point72 Asset Management, Balyasny Asset Management, and Citadel Investment Group 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 GAMCO Investors allocated the biggest weight to Dril-Quip, Inc. (NYSE:DRQ), around 0.23% of its 13F portfolio. Polaris Capital Management is also relatively very bullish on the stock, setting aside 0.06 percent of its 13F equity portfolio to DRQ.

Judging by the fact that Dril-Quip, Inc. (NYSE:DRQ) has faced falling interest from hedge fund managers, it’s easy to see that there lies a certain “tier” of funds that elected to cut their positions entirely last quarter. Intriguingly, Daniel Beltzman and Gergory Smith’s Birch Run Capital dumped the biggest stake of the 750 funds tracked by Insider Monkey, valued at an estimated $7.4 million in stock, and Paul Tudor Jones’s Tudor Investment Corp was right behind this move, as the fund dumped about $2.5 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 8 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Dril-Quip, Inc. (NYSE:DRQ). These stocks are TTM Technologies, Inc. (NASDAQ:TTMI), Editas Medicine, Inc. (NASDAQ:EDIT), Universal Corp (NYSE:UVV), and City Holding Company (NASDAQ:CHCO). All of these stocks’ market caps resemble DRQ’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TTMI 10 64174 -1
EDIT 16 79121 2
UVV 9 65327 -5
CHCO 6 18195 -7
Average 10.25 56704 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $57 million. That figure was $82 million in DRQ’s case. Editas Medicine, Inc. (NASDAQ:EDIT) is the most popular stock in this table. On the other hand City Holding Company (NASDAQ:CHCO) is the least popular one with only 6 bullish hedge fund positions. Dril-Quip, Inc. (NYSE:DRQ) 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 13.3% in 2020 through June 25th but beat the market by 16.8 percentage points. Unfortunately DRQ wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on DRQ were disappointed as the stock returned -1.6% 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.