We at Insider Monkey have gone over 817 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of September 30th. In this article, we look at what those funds think of Deluxe Corporation (NYSE:DLX) based on that data.
Is Deluxe Corporation (NYSE:DLX) a bargain? The best stock pickers were turning bullish. The number of bullish hedge fund bets went up by 2 lately. Deluxe Corporation (NYSE:DLX) was in 20 hedge funds’ portfolios at the end of September. The all time high for this statistic is 29. Our calculations also showed that DLX isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Cliff Asness of AQR Capital Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. 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 website. Now we’re going to take a gander at the new hedge fund action regarding Deluxe Corporation (NYSE:DLX).
Do Hedge Funds Think DLX Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in DLX over the last 21 quarters. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Cliff Asness’s AQR Capital Management has the largest position in Deluxe Corporation (NYSE:DLX), worth close to $19.4 million, comprising less than 0.1%% of its total 13F portfolio. Sitting at the No. 2 spot is Royce & Associates, led by Chuck Royce, holding a $13.3 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other professional money managers that are bullish consist of Renaissance Technologies, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Zebra Capital Management allocated the biggest weight to Deluxe Corporation (NYSE:DLX), around 0.69% of its 13F portfolio. Minerva Advisors is also relatively very bullish on the stock, earmarking 0.43 percent of its 13F equity portfolio to DLX.
As industrywide interest jumped, some big names have been driving this bullishness. Bridgewater Associates, managed by Ray Dalio, assembled the biggest position in Deluxe Corporation (NYSE:DLX). Bridgewater Associates had $0.4 million invested in the company at the end of the quarter. Thomas Bailard’s Bailard Inc also initiated a $0.4 million position during the quarter. The other funds with brand new DLX positions are Donald Sussman’s Paloma Partners, Mika Toikka’s AlphaCrest Capital Management, and Gavin Saitowitz and Cisco J. del Valle’s Prelude Capital (previously Springbok Capital).
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Deluxe Corporation (NYSE:DLX) but similarly valued. These stocks are Atkore International Group Inc. (NYSE:ATKR), Karyopharm Therapeutics Inc (NASDAQ:KPTI), PC Connection, Inc. (NASDAQ:CNXN), Micro Focus Intl PLC (NYSE:MFGP), Sturm, Ruger & Company (NYSE:RGR), Methode Electronics Inc. (NYSE:MEI), and The Liberty Braves Group (NASDAQ:BATRA). All of these stocks’ market caps match DLX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ATKR | 17 | 60246 | 3 |
| KPTI | 21 | 325726 | 0 |
| CNXN | 4 | 30286 | -4 |
| MFGP | 10 | 18863 | -3 |
| RGR | 24 | 181471 | -3 |
| MEI | 11 | 68216 | -1 |
| BATRA | 12 | 51207 | -1 |
| Average | 14.1 | 105145 | -1.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.1 hedge funds with bullish positions and the average amount invested in these stocks was $105 million. That figure was $69 million in DLX’s case. Sturm, Ruger & Company (NYSE:RGR) is the most popular stock in this table. On the other hand PC Connection, Inc. (NASDAQ:CNXN) is the least popular one with only 4 bullish hedge fund positions. Deluxe Corporation (NYSE:DLX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DLX is 67.7. 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. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and beat the market again by 15.8 percentage points. Unfortunately DLX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on DLX were disappointed as the stock returned 8.6% since the end of September (through 12/14) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 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.
