Hedge Funds Have Never Been Less Bullish On Dollar Tree, Inc. (DLTR)

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Dollar Tree, Inc. (NASDAQ:DLTR).

Dollar Tree, Inc. (NASDAQ:DLTR) has seen a decrease in enthusiasm from smart money recently. DLTR was in 42 hedge funds’ portfolios at the end of the first quarter of 2020. There were 51 hedge funds in our database with DLTR holdings at the end of the previous quarter. Our calculations also showed that DLTR isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 44 percentage points since March 2017 (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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ryan Frick Dorsal Capital

Ryan Frick of Dorsal Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this successful trader’s “corona catalyst plays“. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s view the fresh hedge fund action encompassing Dollar Tree, Inc. (NASDAQ:DLTR).

What have hedge funds been doing with Dollar Tree, Inc. (NASDAQ:DLTR)?

At Q1’s end, a total of 42 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in DLTR over the last 18 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

Among these funds, Akre Capital Management held the most valuable stake in Dollar Tree, Inc. (NASDAQ:DLTR), which was worth $334.5 million at the end of the third quarter. On the second spot was Rivulet Capital which amassed $203.9 million worth of shares. Palestra Capital Management, D E Shaw, and Citadel Investment Group 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 Rivulet Capital allocated the biggest weight to Dollar Tree, Inc. (NASDAQ:DLTR), around 13.05% of its 13F portfolio. BlueDrive Global Investors is also relatively very bullish on the stock, designating 10.5 percent of its 13F equity portfolio to DLTR.

Judging by the fact that Dollar Tree, Inc. (NASDAQ:DLTR) has faced bearish sentiment from the smart money, logic holds that there were a few fund managers that decided to sell off their positions entirely heading into Q4. It’s worth mentioning that Steve Cohen’s Point72 Asset Management sold off the largest position of the 750 funds followed by Insider Monkey, comprising about $99 million in stock, and Will Cook’s Sunriver Management was right behind this move, as the fund said goodbye to about $35.3 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 9 funds heading into Q4.

Let’s now review hedge fund activity in other stocks similar to Dollar Tree, Inc. (NASDAQ:DLTR). We will take a look at Citrix Systems, Inc. (NASDAQ:CTXS), Alexandria Real Estate Equities Inc (NYSE:ARE), TransDigm Group Incorporated (NYSE:TDG), and The Williams Companies, Inc. (NYSE:WMB). All of these stocks’ market caps resemble DLTR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CTXS 38 1418404 4
ARE 29 196351 8
TDG 58 3800759 -5
WMB 47 552828 7
Average 43 1492086 3.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 43 hedge funds with bullish positions and the average amount invested in these stocks was $1492 million. That figure was $1354 million in DLTR’s case. TransDigm Group Incorporated (NYSE:TDG) is the most popular stock in this table. On the other hand Alexandria Real Estate Equities Inc (NYSE:ARE) is the least popular one with only 29 bullish hedge fund positions. Dollar Tree, Inc. (NASDAQ:DLTR) is not the least popular stock in this group but hedge fund interest is still below average. 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 8.3% in 2020 through the end of May and still beat the market by 13.2 percentage points. A small number of hedge funds were also right about betting on DLTR as the stock returned 33.2% during the second quarter and outperformed the market by an even larger margin.

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