Did The Smart Money Play Dollar Tree, Inc. (DLTR) Correctly?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Dollar Tree, Inc. (NASDAQ:DLTR) and determine whether hedge funds skillfully traded this stock.

Is Dollar Tree, Inc. (NASDAQ:DLTR) a good investment right now? The smart money was cutting their exposure. The number of bullish hedge fund positions decreased by 4 lately. Dollar Tree, Inc. (NASDAQ:DLTR) was in 38 hedge funds’ portfolios at the end of September. The all time high for this statistic is 65. Our calculations also showed that DLTR isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now let’s check out the latest hedge fund action surrounding Dollar Tree, Inc. (NASDAQ:DLTR).

Do Hedge Funds Think DLTR Is A Good Stock To Buy Now?

At third quarter’s end, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from the previous quarter. The graph below displays the number of hedge funds with bullish position in DLTR over the last 25 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

Is DLTR A Good Stock To Buy?

The largest stake in Dollar Tree, Inc. (NASDAQ:DLTR) was held by Akre Capital Management, which reported holding $342.8 million worth of stock at the end of September. It was followed by Rivulet Capital with a $199.6 million position. Other investors bullish on the company included Arrowstreet Capital, Citadel Investment Group, and Intermede Investment Partners. In terms of the portfolio weights assigned to each position Rivulet Capital allocated the biggest weight to Dollar Tree, Inc. (NASDAQ:DLTR), around 10.41% of its 13F portfolio. KG Funds Management is also relatively very bullish on the stock, earmarking 8.22 percent of its 13F equity portfolio to DLTR.

Seeing as Dollar Tree, Inc. (NASDAQ:DLTR) has experienced a decline in interest from the entirety of the hedge funds we track, logic holds that there exists a select few funds that decided to sell off their positions entirely in the third quarter. It’s worth mentioning that Glenn Greenberg’s Brave Warrior Capital dumped the biggest position of the 750 funds monitored by Insider Monkey, totaling an estimated $94.5 million in stock. Steven Richman’s fund, East Side Capital (RR Partners), also dropped its stock, about $84.6 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 4 funds in the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Dollar Tree, Inc. (NASDAQ:DLTR). These stocks are TransUnion (NYSE:TRU), Mid America Apartment Communities Inc (NYSE:MAA), PPL Corporation (NYSE:PPL), Sun Communities Inc (NYSE:SUI), Martin Marietta Materials, Inc. (NYSE:MLM), Fox Corporation (NASDAQ:FOX), and Edison International (NYSE:EIX). All of these stocks’ market caps are similar to DLTR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TRU 38 2180644 3
MAA 22 254912 8
PPL 20 140767 -3
SUI 33 794559 3
MLM 42 2154281 8
FOX 25 665945 0
EIX 25 1240177 7
Average 29.3 1061612 3.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.3 hedge funds with bullish positions and the average amount invested in these stocks was $1062 million. That figure was $1215 million in DLTR’s case. Martin Marietta Materials, Inc. (NYSE:MLM) is the most popular stock in this table. On the other hand PPL Corporation (NYSE:PPL) is the least popular one with only 20 bullish hedge fund positions. Dollar Tree, Inc. (NASDAQ:DLTR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DLTR is 59.4. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and still beat the market by 3.6 percentage points. Hedge funds were also right about betting on DLTR as the stock returned 37.1% since the end of Q3 (through 1/31) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Follow Dollar Tree Inc. (NASDAQ:DLTR)

Suggested Articles:

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