Hedge Funds Were Buying Chewy, Inc. (CHWY) Before The Coronavirus

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (read our latest 10 coronavirus predictions).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We at Insider Monkey have gone over 835 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 December 31st. In this article, we look at what those funds think of Chewy, Inc. (NYSE:CHWY) based on that data.

Is Chewy, Inc. (NYSE:CHWY) going to take off soon? Investors who are in the know are becoming hopeful. The number of long hedge fund positions rose by 10 in recent months. Our calculations also showed that CHWY isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 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.

According to most shareholders, hedge funds are seen as unimportant, old investment tools of years past. While there are greater than 8000 funds trading at present, Our researchers look at the aristocrats of this club, approximately 850 funds. These money managers oversee the majority of the hedge fund industry’s total capital, and by watching their finest stock picks, Insider Monkey has determined several investment strategies that have historically outstripped the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

Lone Pine Capital 2015 Q2 Investor Letter

Stephen Mandel of Lone Pine Capital

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to go over the latest hedge fund action surrounding Chewy, Inc. (NYSE:CHWY).

Hedge fund activity in Chewy, Inc. (NYSE:CHWY)

At the end of the fourth quarter, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of 40% from one quarter earlier. On the other hand, there were a total of 0 hedge funds with a bullish position in CHWY a year ago. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

Is CHWY A Good Stock To Buy?

Among these funds, Lone Pine Capital held the most valuable stake in Chewy, Inc. (NYSE:CHWY), which was worth $147.1 million at the end of the third quarter. On the second spot was Viking Global which amassed $84 million worth of shares. D1 Capital Partners, Zevenbergen Capital Investments, and Samlyn Capital 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 Rip Road Capital allocated the biggest weight to Chewy, Inc. (NYSE:CHWY), around 10.82% of its 13F portfolio. Stormborn Capital Management is also relatively very bullish on the stock, designating 6.69 percent of its 13F equity portfolio to CHWY.

As industrywide interest jumped, specific money managers have jumped into Chewy, Inc. (NYSE:CHWY) headfirst. Viking Global, managed by Andreas Halvorsen, established the biggest position in Chewy, Inc. (NYSE:CHWY). Viking Global had $84 million invested in the company at the end of the quarter. Dennis Goldstein’s Rip Road Capital also made a $13 million investment in the stock during the quarter. The other funds with brand new CHWY positions are Principal Global Investors’s Columbus Circle Investors, George Baxter’s Sabrepoint Capital, and James Woodson Davis’s Woodson Capital Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Chewy, Inc. (NYSE:CHWY) but similarly valued. We will take a look at Alleghany Corporation (NYSE:Y), Teradyne, Inc. (NYSE:TER), Globe Life Inc. (NYSE:GL), and Everest Re Group Ltd (NYSE:RE). This group of stocks’ market values resemble CHWY’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
Y 24 384460 -4
TER 33 1144237 -1
GL 23 861493 2
RE 24 876907 1
Average 26 816774 -0.5

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 $817 million. That figure was $601 million in CHWY’s case. Teradyne, Inc. (NYSE:TER) is the most popular stock in this table. On the other hand Globe Life Inc. (NYSE:GL) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks Chewy, Inc. (NYSE:CHWY) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but still managed to beat the market by 3.2 percentage points. Hedge funds were also right about betting on CHWY as the stock returned -16.3% so far in Q1 (through March 16th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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