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Are Hedge Funds Right About Dumping HD Supply Holdings Inc (HDS) ?

Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the second quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds’ top consensus picks. This year hedge funds’ top 20 stock picks outperformed the S&P 500 Index by 6.6 percentage points through May 30th. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.

HD Supply Holdings Inc (NASDAQ:HDS) investors should be aware of a decrease in support from the world’s most elite money managers in recent months. HDS was in 30 hedge funds’ portfolios at the end of the first quarter of 2019. There were 31 hedge funds in our database with HDS positions at the end of the previous quarter. Our calculations also showed that HDS isn’t among the 30 most popular stocks among hedge funds.

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’ 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.

Noam Gottesman GLG Partners

Noam Gottesman, GLG Partners

Let’s take a gander at the fresh hedge fund action regarding HD Supply Holdings Inc (NASDAQ:HDS).

What have hedge funds been doing with HD Supply Holdings Inc (NASDAQ:HDS)?

At the end of the first quarter, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from the fourth quarter of 2018. By comparison, 35 hedge funds held shares or bullish call options in HDS a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

HDS_june2019

The largest stake in HD Supply Holdings Inc (NASDAQ:HDS) was held by OZ Management, which reported holding $173.4 million worth of stock at the end of March. It was followed by D E Shaw with a $125.5 million position. Other investors bullish on the company included GLG Partners, JANA Partners, and Millennium Management.

Seeing as HD Supply Holdings Inc (NASDAQ:HDS) has experienced falling interest from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of money managers who were dropping their positions entirely last quarter. At the top of the heap, David Cohen and Harold Levy’s Iridian Asset Management sold off the largest stake of the “upper crust” of funds tracked by Insider Monkey, valued at an estimated $154.6 million in stock, and Clint Carlson’s Carlson Capital was right behind this move, as the fund dumped about $19.7 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds last quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as HD Supply Holdings Inc (NASDAQ:HDS) but similarly valued. We will take a look at Euronet Worldwide, Inc. (NASDAQ:EEFT), Sensata Technologies Holding plc (NYSE:ST), Macy’s, Inc. (NYSE:M), and Crown Holdings, Inc. (NYSE:CCK). This group of stocks’ market values match HDS’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EEFT 33 376566 2
ST 21 1123073 -2
M 30 733780 0
CCK 38 1021922 3
Average 30.5 813835 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.5 hedge funds with bullish positions and the average amount invested in these stocks was $814 million. That figure was $939 million in HDS’s case. Crown Holdings, Inc. (NYSE:CCK) is the most popular stock in this table. On the other hand Sensata Technologies Holding plc (NYSE:ST) is the least popular one with only 21 bullish hedge fund positions. HD Supply Holdings Inc (NASDAQ:HDS) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 HDS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); HDS investors were disappointed as the stock returned -4% 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 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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