How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Grocery Outlet Holding Corp. (NASDAQ:GO) and determine whether hedge funds had an edge regarding this stock.
Grocery Outlet Holding Corp. (NASDAQ:GO) investors should pay attention to an increase in hedge fund interest in recent months. Grocery Outlet Holding Corp. (NASDAQ:GO) was in 19 hedge funds’ portfolios at the end of June. The all time high for this statistics is 21. There were 17 hedge funds in our database with GO positions at the end of the first quarter. Our calculations also showed that GO 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.
Noam Gottesman of GLG Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. 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. Keeping this in mind let’s view the new hedge fund action surrounding Grocery Outlet Holding Corp. (NASDAQ:GO).
What have hedge funds been doing with Grocery Outlet Holding Corp. (NASDAQ:GO)?
At Q2’s end, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 12% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards GO over the last 20 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Renaissance Technologies, holds the biggest position in Grocery Outlet Holding Corp. (NASDAQ:GO). Renaissance Technologies has a $34.9 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is Millennium Management, led by Israel Englander, holding a $19 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other peers that hold long positions contain Robert Joseph Caruso’s Select Equity Group, Simon Sadler’s Segantii Capital and Zach Petrone’s Highside Global Management. In terms of the portfolio weights assigned to each position Highside Global Management allocated the biggest weight to Grocery Outlet Holding Corp. (NASDAQ:GO), around 9.12% of its 13F portfolio. Segantii Capital is also relatively very bullish on the stock, designating 1.22 percent of its 13F equity portfolio to GO.
With a general bullishness amongst the heavyweights, specific money managers have jumped into Grocery Outlet Holding Corp. (NASDAQ:GO) headfirst. Select Equity Group, managed by Robert Joseph Caruso, assembled the most outsized position in Grocery Outlet Holding Corp. (NASDAQ:GO). Select Equity Group had $18.3 million invested in the company at the end of the quarter. Simon Sadler’s Segantii Capital also made a $17.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Peter Muller’s PDT Partners, Noam Gottesman’s GLG Partners, and D. E. Shaw’s D E Shaw.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Grocery Outlet Holding Corp. (NASDAQ:GO) but similarly valued. These stocks are Tempur Sealy International Inc. (NYSE:TPX), Dicks Sporting Goods Inc (NYSE:DKS), Ultrapar Participacoes SA (NYSE:UGP), RLI Corp. (NYSE:RLI), Agios Pharmaceuticals Inc (NASDAQ:AGIO), Tapestry, Inc. (NYSE:TPR), and Simpson Manufacturing Co, Inc. (NYSE:SSD). This group of stocks’ market values match GO’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TPX | 46 | 1023259 | 8 |
| DKS | 40 | 493110 | 13 |
| UGP | 7 | 38733 | 2 |
| RLI | 20 | 160243 | 5 |
| AGIO | 30 | 460464 | 7 |
| TPR | 39 | 533337 | 2 |
| SSD | 21 | 200223 | -5 |
| Average | 29 | 415624 | 4.6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $416 million. That figure was $138 million in GO’s case. Tempur Sealy International Inc. (NYSE:TPX) is the most popular stock in this table. On the other hand Ultrapar Participacoes SA (NYSE:UGP) is the least popular one with only 7 bullish hedge fund positions. Grocery Outlet Holding Corp. (NASDAQ:GO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for GO is 49.5. 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. 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 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 gained 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately GO wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); GO investors were disappointed as the stock returned -3.6% in the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Follow Grocery Outlet Holding Corp.
Follow Grocery Outlet Holding Corp.
Disclosure: None. This article was originally published at Insider Monkey.
