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 The Home Depot, Inc. (NYSE:HD).
The Home Depot, Inc. (NYSE:HD) was in 58 hedge funds’ portfolios at the end of September. The all time high for this statistic is 91. HD investors should be aware of a decrease in support from the world’s most elite money managers lately. There were 64 hedge funds in our database with HD holdings at the end of June. Our calculations also showed that HD isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind let’s review the recent hedge fund action surrounding The Home Depot, Inc. (NYSE:HD).
Tom Gayner of Markel Gayner Asset Management
Do Hedge Funds Think HD Is A Good Stock To Buy Now?
At third quarter’s end, a total of 58 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in HD over the last 25 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in The Home Depot, Inc. (NYSE:HD) was held by Fisher Asset Management, which reported holding $2456.7 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $555.5 million position. Other investors bullish on the company included Adage Capital Management, AQR Capital Management, and Markel Gayner Asset Management. In terms of the portfolio weights assigned to each position Pittencrieff Partners – Gabalex Capital allocated the biggest weight to The Home Depot, Inc. (NYSE:HD), around 7.21% of its 13F portfolio. Chilton Investment Company is also relatively very bullish on the stock, dishing out 5.75 percent of its 13F equity portfolio to HD.
Due to the fact that The Home Depot, Inc. (NYSE:HD) has witnessed a decline in interest from the smart money, logic holds that there lies a certain “tier” of fund managers that slashed their positions entirely heading into Q4. Interestingly, Benjamin A. Smith’s Laurion Capital Management dropped the largest stake of the 750 funds tracked by Insider Monkey, totaling an estimated $67.4 million in call options, and Donald Sussman’s Paloma Partners was right behind this move, as the fund cut about $16.1 million worth. These moves are interesting, as total hedge fund interest fell by 6 funds heading into Q4.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as The Home Depot, Inc. (NYSE:HD) but similarly valued. We will take a look at Mastercard Incorporated (NYSE:MA), The Procter & Gamble Company (NYSE:PG), ASML Holding N.V. (NASDAQ:ASML), The Walt Disney Company (NYSE:DIS), Paypal Holdings Inc (NASDAQ:PYPL), Adobe Inc. (NASDAQ:ADBE), and Netflix, Inc. (NASDAQ:NFLX). This group of stocks’ market values are similar to HD’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MA | 146 | 17659997 | -10 |
| PG | 69 | 6414152 | 1 |
| ASML | 41 | 4858031 | -3 |
| DIS | 101 | 9416047 | -11 |
| PYPL | 123 | 12880990 | -20 |
| ADBE | 95 | 12682168 | 6 |
| NFLX | 106 | 14759355 | -7 |
| Average | 97.3 | 11238677 | -6.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 97.3 hedge funds with bullish positions and the average amount invested in these stocks was $11239 million. That figure was $4380 million in HD’s case. Mastercard Incorporated (NYSE:MA) is the most popular stock in this table. On the other hand ASML Holding N.V. (NASDAQ:ASML) is the least popular one with only 41 bullish hedge fund positions. The Home Depot, Inc. (NYSE:HD) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for HD is 26.2. 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. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.6% in 2021 through November 30th and still beat the market by 5.6 percentage points. A small number of hedge funds were also right about betting on HD as the stock returned 22% since the end of the third quarter (through 11/30) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.
