Is Chewy, Inc. (CHWY) Going to Burn These Hedge Funds?

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Chewy, Inc. (NYSE:CHWY).

Chewy, Inc. (NYSE:CHWY) shareholders have witnessed a decrease in support from the world’s most elite money managers in recent months. Chewy, Inc. (NYSE:CHWY) was in 32 hedge funds’ portfolios at the end of March. The all time high for this statistic is 46. There were 38 hedge funds in our database with CHWY positions at the end of the fourth quarter. Our calculations also showed that CHWY isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 115 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now we’re going to take a peek at the key hedge fund action surrounding Chewy, Inc. (NYSE:CHWY).

Do Hedge Funds Think CHWY Is A Good Stock To Buy Now?

At first quarter’s end, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -16% from the fourth quarter of 2020. The graph below displays the number of hedge funds with bullish position in CHWY over the last 23 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.

The largest stake in Chewy, Inc. (NYSE:CHWY) was held by Citadel Investment Group, which reported holding $113.7 million worth of stock at the end of December. It was followed by Zevenbergen Capital Investments with a $109.9 million position. Other investors bullish on the company included D E Shaw, Tybourne Capital Management, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Rip Road Capital allocated the biggest weight to Chewy, Inc. (NYSE:CHWY), around 7.19% of its 13F portfolio. Berylson Capital Partners is also relatively very bullish on the stock, earmarking 5.5 percent of its 13F equity portfolio to CHWY.

Seeing as Chewy, Inc. (NYSE:CHWY) has experienced declining sentiment from the smart money, we can see that there exists a select few hedgies that slashed their positions entirely in the first quarter. At the top of the heap, Glen Kacher’s Light Street Capital sold off the biggest investment of the 750 funds followed by Insider Monkey, comprising close to $48.2 million in stock, and Doug Silverman and Alexander Klabin’s Senator Investment Group was right behind this move, as the fund dumped about $24.7 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 6 funds in the first quarter.

Let’s now take a look at 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 Marathon Petroleum Corp (NYSE:MPC), The Allstate Corporation (NYSE:ALL), LyondellBasell Industries NV (NYSE:LYB), International Flavors & Fragrances Inc (NYSE:IFF), Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA), STMicroelectronics N.V. (NYSE:STM), and MSCI Inc (NYSE:MSCI). All of these stocks’ market caps are similar to CHWY’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MPC 46 1966638 3
ALL 41 893928 3
LYB 47 891913 20
IFF 55 3602931 22
BBVA 7 211912 -2
STM 15 276813 -2
MSCI 38 739290 -3
Average 35.6 1226204 5.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.6 hedge funds with bullish positions and the average amount invested in these stocks was $1226 million. That figure was $434 million in CHWY’s case. International Flavors & Fragrances Inc (NYSE:IFF) is the most popular stock in this table. On the other hand Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA) is the least popular one with only 7 bullish hedge fund positions. Chewy, Inc. (NYSE:CHWY) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CHWY is 45.9. 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. 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 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 22.8% in 2021 through July 2nd and surpassed the market again by 6 percentage points. Unfortunately CHWY wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); CHWY investors were disappointed as the stock returned -4.9% since the end of March (through 7/2) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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