Dollar General Corp. (NYSE:DG) investors should pay attention to a decrease in hedge fund sentiment of late.
If you’d ask most investors, hedge funds are seen as slow, old financial tools of the past. While there are more than 8000 funds with their doors open at present, we hone in on the masters of this club, close to 450 funds. Most estimates calculate that this group controls most of the smart money’s total capital, and by watching their top stock picks, we have found a few investment strategies that have historically beaten the S&P 500 index. Our small-cap hedge fund strategy outpaced the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have outclassed the S&P 500 index by 24 percentage points in 7 months (check out a sample of our picks).
Equally as important, optimistic insider trading activity is another way to parse down the marketplace. Just as you’d expect, there are lots of motivations for an insider to get rid of shares of his or her company, but only one, very clear reason why they would buy. Various empirical studies have demonstrated the impressive potential of this strategy if you know what to do (learn more here).
With all of this in mind, we’re going to take a glance at the recent action encompassing Dollar General Corp. (NYSE:DG).
How are hedge funds trading Dollar General Corp. (NYSE:DG)?
In preparation for this year, a total of 44 of the hedge funds we track were long in this stock, a change of -19% from the third quarter. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings considerably.
Of the funds we track, Stephen Mandel’s Lone Pine Capital had the largest position in Dollar General Corp. (NYSE:DG), worth close to $588.3 million, accounting for 3.7% of its total 13F portfolio. Sitting at the No. 2 spot is Eton Park Capital, managed by Eric Mindich, which held a $286.6 million position; 6% of its 13F portfolio is allocated to the stock. Remaining peers with similar optimism include James Crichton and Adam Weiss’s Scout Capital Management, Bain Capital’s Brookside Capital and Lee Ainslie’s Maverick Capital.
Seeing as Dollar General Corp. (NYSE:DG) has faced declining sentiment from the smart money, it’s safe to say that there lies a certain “tier” of funds who sold off their entire stakes last quarter. At the top of the heap, Brian Jackelow’s SAB Capital Management dropped the largest investment of all the hedgies we track, worth about $158.7 million in stock., and Anand Parekh of Alyeska Investment Group was right behind this move, as the fund said goodbye to about $105.3 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 10 funds last quarter.
How are insiders trading Dollar General Corp. (NYSE:DG)?
Insider buying is particularly usable when the company in question has seen transactions within the past 180 days. Over the last half-year time period, Dollar General Corp. (NYSE:DG) has seen 3 unique insiders purchasing, and 9 insider sales (see the details of insider trades here).
Let’s also take a look at hedge fund and insider activity in other stocks similar to Dollar General Corp. (NYSE:DG). These stocks are PriceSmart, Inc. (NASDAQ:PSMT), Costco Wholesale Corporation (NASDAQ:COST), Target Corporation (NYSE:TGT), Family Dollar Stores, Inc. (NYSE:FDO), and Dollar Tree, Inc. (NASDAQ:DLTR). All of these stocks are in the discount, variety stores industry and their market caps are similar to DG’s market cap.