Was The Smart Money Right About Embracing Dell Technologies Inc. (DELL)?

Abigail Fisher
·6 min read

In this article you are going to find out whether hedge funds think Dell Technologies Inc. (NYSE:DELL) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is Dell Technologies Inc. (NYSE:DELL) a superb investment today? Hedge funds were turning bullish. The number of long hedge fund positions inched up by 11 recently. Dell Technologies Inc. (NYSE:DELL) was in 50 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 86. Our calculations also showed that DELL isn't among the 30 most popular stocks among hedge funds (click for Q2 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 financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Paul Singer ELLIOTT MANAGEMENT
Paul Singer ELLIOTT MANAGEMENT

Paul Singer of Elliott Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Now let's check out the latest hedge fund action surrounding Dell Technologies Inc. (NYSE:DELL).

What does smart money think about Dell Technologies Inc. (NYSE:DELL)?

At the end of June, a total of 50 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 28% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in DELL over the last 20 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Is DELL A Good Stock To Buy?
Is DELL A Good Stock To Buy?

The largest stake in Dell Technologies Inc. (NYSE:DELL) was held by Elliott Investment Management, which reported holding $1160.7 million worth of stock at the end of September. It was followed by Canyon Capital Advisors with a $365.2 million position. Other investors bullish on the company included Lyrical Asset Management, First Pacific Advisors LLC, and Point72 Asset Management. In terms of the portfolio weights assigned to each position HighVista Strategies allocated the biggest weight to Dell Technologies Inc. (NYSE:DELL), around 30.97% of its 13F portfolio. Engine Capital is also relatively very bullish on the stock, earmarking 14.7 percent of its 13F equity portfolio to DELL.

Now, key hedge funds were leading the bulls' herd. Iridian Asset Management, managed by David Cohen and Harold Levy, created the most outsized position in Dell Technologies Inc. (NYSE:DELL). Iridian Asset Management had $69.1 million invested in the company at the end of the quarter. Brandon Haley's Holocene Advisors also initiated a $65.1 million position during the quarter. The following funds were also among the new DELL investors: Jacob Mitchell's Antipodes Partners, David Rosen's Rubric Capital Management, and Dmitry Balyasny's Balyasny Asset Management.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Dell Technologies Inc. (NYSE:DELL) but similarly valued. These stocks are Lululemon Athletica inc. (NASDAQ:LULU), Roper Technologies Inc. (NYSE:ROP), TAL Education Group (NYSE:TAL), TC Energy Corporation (NYSE:TRP), Banco Santander, S.A. (NYSE:SAN), Keurig Dr Pepper Inc. (NASDAQ:KDP), and Enterprise Products Partners L.P. (NYSE:EPD). All of these stocks' market caps resemble DELL's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LULU,39,686929,-1 ROP,45,1101856,7 TAL,40,2367131,2 TRP,21,255710,-3 SAN,16,351399,-2 KDP,29,725935,-1 EPD,30,222209,4 Average,31.4,815881,0.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.4 hedge funds with bullish positions and the average amount invested in these stocks was $816 million. That figure was $2990 million in DELL's case. Roper Technologies Inc. (NYSE:ROP) is the most popular stock in this table. On the other hand Banco Santander, S.A. (NYSE:SAN) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Dell Technologies Inc. (NYSE:DELL) is more popular among hedge funds. Our overall hedge fund sentiment score for DELL is 77.4. 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. 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 returned 30% in 2020 through October 23rd but still managed to beat the market by 21 percentage points. Hedge funds were also right about betting on DELL as the stock returned 24.1% since the end of June (through 10/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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