Did Hedge Funds Make The Right Call On Discovery Inc. (DISCA) ?
Abigail Fisher
6 min read
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 Discovery Inc. (NASDAQ:DISCA) based on that data and determine whether they were really smart about the stock.
Discovery Inc. (NASDAQ:DISCA) investors should be aware of a decrease in support from the world's most elite money managers in recent months. Our calculations also showed that DISCA 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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. Now we're going to view the fresh hedge fund action encompassing Discovery Inc. (NASDAQ:DISCA).
What have hedge funds been doing with Discovery Inc. (NASDAQ:DISCA)?
Heading into the second quarter of 2020, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -16% from the fourth quarter of 2019. On the other hand, there were a total of 26 hedge funds with a bullish position in DISCA 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.
Of the funds tracked by Insider Monkey, Ken Griffin's Citadel Investment Group has the number one position in Discovery Inc. (NASDAQ:DISCA), worth close to $63.9 million, accounting for less than 0.1%% of its total 13F portfolio. The second largest stake is held by GoldenTree Asset Management, managed by Steven Tananbaum, which holds a $34.3 million position; the fund has 6.3% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism encompass Bill Miller's Miller Value Partners, Mario Gabelli's GAMCO Investors and Stuart J. Zimmer's Zimmer Partners. In terms of the portfolio weights assigned to each position Scion Asset Management allocated the biggest weight to Discovery Inc. (NASDAQ:DISCA), around 7.92% of its 13F portfolio. GoldenTree Asset Management is also relatively very bullish on the stock, earmarking 6.35 percent of its 13F equity portfolio to DISCA.
Seeing as Discovery Inc. (NASDAQ:DISCA) has faced declining sentiment from hedge fund managers, it's easy to see that there exists a select few hedgies that decided to sell off their positions entirely last quarter. Interestingly, D. E. Shaw's D E Shaw dumped the largest position of the 750 funds tracked by Insider Monkey, worth close to $13.7 million in stock, and Avi Fruchter's Anavon Capital was right behind this move, as the fund dropped about $7.5 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 6 funds last quarter.
Let's check out hedge fund activity in other stocks similar to Discovery Inc. (NASDAQ:DISCA). We will take a look at GSX Techedu Inc. (NYSE:GSX), KeyCorp (NYSE:KEY), HEICO Corporation (NYSE:HEI), and TELUS Corporation (NYSE:TU). All of these stocks' market caps are closest to DISCA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GSX,13,204210,3 KEY,43,348822,7 HEI,39,602163,-18 TU,15,197962,2 Average,27.5,338289,-1.5 [/table]
As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $338 million. That figure was $233 million in DISCA's case. KeyCorp (NYSE:KEY) is the most popular stock in this table. On the other hand GSX Techedu Inc. (NYSE:GSX) is the least popular one with only 13 bullish hedge fund positions. Discovery Inc. (NASDAQ:DISCA) 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 DISCA wasn't nearly as popular as these 10 stocks and hedge funds that were betting on DISCA were disappointed as the stock returned 8.5% 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.
