Hedge Funds Warming Up To HD Supply Holdings Inc (HDS)

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, near the height of the coronavirus market crash. In this article, we look at what those funds think of HD Supply Holdings Inc (NASDAQ:HDS) based on that data.

Is HD Supply Holdings Inc (NASDAQ:HDS) a bargain? Prominent investors are buying. The number of long hedge fund positions went up by 2 lately. Our calculations also showed that HDS 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 51 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Barry Rosenstein JANA PARTNERS

Barry Rosenstein of JANA Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. 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 we’re going to take a glance at the recent hedge fund action surrounding HD Supply Holdings Inc (NASDAQ:HDS).

How are hedge funds trading HD Supply Holdings Inc (NASDAQ:HDS)?

At the end of the first quarter, a total of 40 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in HDS over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Baupost Group, managed by Seth Klarman, holds the number one position in HD Supply Holdings Inc (NASDAQ:HDS). Baupost Group has a $176.8 million position in the stock, comprising 2.6% of its 13F portfolio. Sitting at the No. 2 spot is David Cohen and Harold Levy of Iridian Asset Management, with a $151.1 million position; the fund has 3.7% of its 13F portfolio invested in the stock. Some other peers that are bullish contain Ricky Sandler’s Eminence Capital, D. E. Shaw’s D E Shaw and Barry Rosenstein’s JANA Partners. In terms of the portfolio weights assigned to each position Marathon Partners allocated the biggest weight to HD Supply Holdings Inc (NASDAQ:HDS), around 15.37% of its 13F portfolio. Impactive Capital is also relatively very bullish on the stock, earmarking 11.11 percent of its 13F equity portfolio to HDS.

As one would reasonably expect, key hedge funds were breaking ground themselves. Baupost Group, managed by Seth Klarman, established the biggest position in HD Supply Holdings Inc (NASDAQ:HDS). Baupost Group had $176.8 million invested in the company at the end of the quarter. Ricky Sandler’s Eminence Capital also made a $136.5 million investment in the stock during the quarter. The following funds were also among the new HDS investors: Clint Carlson’s Carlson Capital, Angela Aldrich’s Bayberry Capital Partners, and Andrew Byington’s Appian Way Asset Management.

Let’s also examine 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), Enel Chile S.A. (NYSE:ENIC), Forty Seven, Inc. (NASDAQ:FTSV), and Sensata Technologies Holding plc (NYSE:ST). All of these stocks’ market caps are closest to HDS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EEFT 30 240212 -17
ENIC 8 17690 2
FTSV 40 1084502 22
ST 26 699556 3
Average 26 510490 2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $510 million. That figure was $856 million in HDS’s case. Forty Seven, Inc. (NASDAQ:FTSV) is the most popular stock in this table. On the other hand Enel Chile S.A. (NYSE:ENIC) is the least popular one with only 8 bullish hedge fund positions. HD Supply Holdings Inc (NASDAQ:HDS) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 8.3% in 2020 through the end of May but beat the market by 13.2 percentage points. Unfortunately HDS wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on HDS were disappointed as the stock returned 11.5% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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