Were Hedge Funds Right About Flocking Into Diebold Nixdorf Incorporated (DBD) ?

Abigail Fisher

Wed, Jun 19, 2019, 6:42 PM

As we already know from media reports and hedge fund investor letters, many hedge funds lost money in fourth quarter, blaming macroeconomic conditions and unpredictable events that hit several sectors, with technology among them. Nevertheless, most investors decided to stick to their bullish theses and recouped their losses by the end of the first quarter. We get to see hedge funds' thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Diebold Nixdorf Incorporated (NYSE:DBD).

Is Diebold Nixdorf Incorporated (NYSE:DBD) a bargain? The best stock pickers are in an optimistic mood. The number of bullish hedge fund bets increased by 7 lately. Our calculations also showed that DBD isn't among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_375529" align="aligncenter" width="450"]

Mario Gabelli of GAMCO Investors[/caption]

Let's take a look at the fresh hedge fund action surrounding Diebold Nixdorf Incorporated (NYSE:DBD).

What does the smart money think about Diebold Nixdorf Incorporated (NYSE:DBD)?

At Q1's end, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 64% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards DBD over the last 15 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Diebold Nixdorf Incorporated (NYSE:DBD) was held by GAMCO Investors, which reported holding $64.6 million worth of stock at the end of March. It was followed by Ancora Advisors with a $22.4 million position. Other investors bullish on the company included D E Shaw, Prescott Group Capital Management, and Brigade Capital.

As aggregate interest increased, specific money managers were leading the bulls' herd. D E Shaw, managed by D. E. Shaw, assembled the largest position in Diebold Nixdorf Incorporated (NYSE:DBD). D E Shaw had $22.3 million invested in the company at the end of the quarter. Matthew Hulsizer's PEAK6 Capital Management also initiated a $5.2 million position during the quarter. The other funds with brand new DBD positions are David MacKnight's One Fin Capital Management, Joel Greenblatt's Gotham Asset Management, and Cliff Asness's AQR Capital Management.

Let's check out hedge fund activity in other stocks similar to Diebold Nixdorf Incorporated (NYSE:DBD). These stocks are Systemax Inc. (NYSE:SYX), PlayAGS, Inc. (NYSE:AGS), QAD Inc. (NASDAQ:QADA), and CBTX, Inc. (NASDAQ:CBTX). This group of stocks' market values resemble DBD's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SYX,12,23366,1 AGS,22,130434,11 QADA,16,124879,-1 CBTX,8,22427,0 Average,14.5,75277,2.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $75 million. That figure was $166 million in DBD's case. PlayAGS, Inc. (NYSE:AGS) is the most popular stock in this table. On the other hand CBTX, Inc. (NASDAQ:CBTX) is the least popular one with only 8 bullish hedge fund positions. Diebold Nixdorf Incorporated (NYSE:DBD) 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 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately DBD wasn't nearly as popular as these 20 stocks and hedge funds that were betting on DBD were disappointed as the stock returned -17.8% during the same 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 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.

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

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