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Hedge Funds Are Starting To Buy Darden Restaurants, Inc. (DRI)

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Darden Restaurants, Inc. (NYSE:DRI).

Is Darden Restaurants, Inc. (NYSE:DRI) a superb investment right now? Money managers are taking a bullish view. The number of long hedge fund positions increased by 4 lately. Our calculations also showed that DRI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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.

BRIDGEWATER ASSOCIATES

Ray Dalio of Bridgewater Associates

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a look at the new hedge fund action encompassing Darden Restaurants, Inc. (NYSE:DRI).

What does smart money think about Darden Restaurants, Inc. (NYSE:DRI)?

At Q3’s end, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from the second quarter of 2019. On the other hand, there were a total of 22 hedge funds with a bullish position in DRI a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

DRI_dec2019

Among these funds, AQR Capital Management held the most valuable stake in Darden Restaurants, Inc. (NYSE:DRI), which was worth $257.4 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $196.6 million worth of shares. Renaissance Technologies, Two Sigma Advisors, and Junto Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Junto Capital Management allocated the biggest weight to Darden Restaurants, Inc. (NYSE:DRI), around 2.52% of its portfolio. Centenus Global Management is also relatively very bullish on the stock, setting aside 1.08 percent of its 13F equity portfolio to DRI.

Now, key hedge funds have jumped into Darden Restaurants, Inc. (NYSE:DRI) headfirst. Junto Capital Management, managed by James Parsons, created the most outsized position in Darden Restaurants, Inc. (NYSE:DRI). Junto Capital Management had $42.5 million invested in the company at the end of the quarter. Sara Nainzadeh’s Centenus Global Management also initiated a $7.7 million position during the quarter. The following funds were also among the new DRI investors: Ray Dalio’s Bridgewater Associates, David Costen Haley’s HBK Investments, and Mike Vranos’s Ellington.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Darden Restaurants, Inc. (NYSE:DRI) but similarly valued. We will take a look at Dover Corporation (NYSE:DOV), Align Technology, Inc. (NASDAQ:ALGN), MGM Resorts International (NYSE:MGM), and ArcelorMittal (NYSE:MT). All of these stocks’ market caps are closest to DRI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DOV 30 731406 -2
ALGN 34 1496709 -7
MGM 48 2194471 13
MT 14 192839 -1
Average 31.5 1153856 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.5 hedge funds with bullish positions and the average amount invested in these stocks was $1154 million. That figure was $812 million in DRI’s case. MGM Resorts International (NYSE:MGM) is the most popular stock in this table. On the other hand ArcelorMittal (NYSE:MT) is the least popular one with only 14 bullish hedge fund positions. Darden Restaurants, Inc. (NYSE:DRI) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately DRI wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); DRI investors were disappointed as the stock returned 1% during the first two months of the fourth 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 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

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

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