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Were Hedge Funds Right About Warming Up To Daqo New Energy Corp (DQ)?

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 have processed the filings of the more than 700 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their June 28 holdings, data that is available nowhere else. Should you consider Daqo New Energy Corp (NYSE:DQ) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.

Daqo New Energy Corp (NYSE:DQ) has seen an increase in hedge fund interest of late. Our calculations also showed that DQ isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

To most investors, hedge funds are viewed as underperforming, outdated financial vehicles of yesteryear. While there are more than 8000 funds trading at present, We choose to focus on the moguls of this group, approximately 750 funds. Most estimates calculate that this group of people direct the majority of the hedge fund industry’s total capital, and by watching their top investments, Insider Monkey has uncovered several investment strategies that have historically surpassed the market. Insider Monkey’s flagship hedge fund strategy beat the S&P 500 index by around 5 percentage points per year since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .

Philip Hempleman Ardsley Partners

In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources  like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. Let’s review the key hedge fund action surrounding Daqo New Energy Corp (NYSE:DQ).

How have hedgies been trading Daqo New Energy Corp (NYSE:DQ)?

At the end of the second quarter, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of 20% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in DQ over the last 16 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

DQ_nov2019

More specifically, Sensato Capital Management was the largest shareholder of Daqo New Energy Corp (NYSE:DQ), with a stake worth $6.4 million reported as of the end of March. Trailing Sensato Capital Management was Arosa Capital Management, which amassed a stake valued at $3 million. Granite Point Capital, Citadel Investment Group, and Ardsley Partners were also very fond of the stock, giving the stock large weights in their portfolios.

Now, key money managers have jumped into Daqo New Energy Corp (NYSE:DQ) headfirst. Arosa Capital Management, managed by Till Bechtolsheimer, assembled the most valuable position in Daqo New Energy Corp (NYSE:DQ). Arosa Capital Management had $3 million invested in the company at the end of the quarter. Warren Lammert’s Granite Point Capital also initiated a $1.6 million position during the quarter. The only other fund with a brand new DQ position is Philip Hempleman’s Ardsley Partners.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Daqo New Energy Corp (NYSE:DQ) but similarly valued. These stocks are OrthoPediatrics Corp. (NASDAQ:KIDS), X Financial (NYSE:XYF), Conn’s, Inc. (NASDAQ:CONN), and RISE Education Cayman Ltd (NASDAQ:REDU). This group of stocks’ market values match DQ’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KIDS 8 35092 0
XYF 3 2337 1
CONN 21 95997 5
REDU 6 6310 3
Average 9.5 34934 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $35 million. That figure was $13 million in DQ’s case. Conn’s, Inc. (NASDAQ:CONN) is the most popular stock in this table. On the other hand X Financial (NYSE:XYF) is the least popular one with only 3 bullish hedge fund positions. Daqo New Energy Corp (NYSE:DQ) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on DQ as the stock returned 8.8% during the same time frame and outperformed the market by an even larger margin.

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

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