Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Dollar General Corp. (NYSE:DG) to find out whether there were any major changes in hedge funds’ views.
Is Dollar General (DG) a good stock to buy now? Money managers were turning less bullish. The number of long hedge fund positions decreased by 11 in recent months. Dollar General Corp. (NYSE:DG) was in 56 hedge funds’ portfolios at the end of September. The all time high for this statistics is 67. Our calculations also showed that DG isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 67 hedge funds in our database with DG positions at the end of the second quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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. Tesla’s stock price skyrocketed, yet lithium prices are still below their 2019 highs. So, we are checking out this lithium stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. 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 website. Keeping this in mind we’re going to view the key hedge fund action regarding Dollar General Corp. (NYSE:DG).
How are hedge funds trading Dollar General Corp. (NYSE:DG)?
At third quarter’s end, a total of 56 of the hedge funds tracked by Insider Monkey were long this stock, a change of -16% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards DG over the last 21 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
Among these funds, BlueSpruce Investments held the most valuable stake in Dollar General Corp. (NYSE:DG), which was worth $309.2 million at the end of the third quarter. On the second spot was Suvretta Capital Management which amassed $185.8 million worth of shares. Holocene Advisors, AQR Capital Management, and Renaissance Technologies 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 12th Street Asset Management allocated the biggest weight to Dollar General Corp. (NYSE:DG), around 8.68% of its 13F portfolio. BlueSpruce Investments is also relatively very bullish on the stock, earmarking 7.26 percent of its 13F equity portfolio to DG.
Seeing as Dollar General Corp. (NYSE:DG) has experienced falling interest from hedge fund managers, logic holds that there is a sect of hedge funds who were dropping their positions entirely last quarter. Intriguingly, Jack Woodruff’s Candlestick Capital Management sold off the biggest investment of the 750 funds tracked by Insider Monkey, valued at close to $38.1 million in stock, and Steven Boyd’s Armistice Capital was right behind this move, as the fund cut about $35.3 million worth. These moves are important to note, as aggregate hedge fund interest fell by 11 funds last quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Dollar General Corp. (NYSE:DG) but similarly valued. We will take a look at Micron Technology, Inc. (NASDAQ:MU), Truist Financial Corporation (NYSE:TFC), Workday Inc (NASDAQ:WDAY), Newmont Corporation (NYSE:NEM), Autodesk, Inc. (NASDAQ:ADSK), Dell Technologies Inc. (NYSE:DELL), and Kimberly Clark Corporation (NYSE:KMB). This group of stocks’ market values match DG’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 55.1 hedge funds with bullish positions and the average amount invested in these stocks was $2792 million. That figure was $1824 million in DG’s case. Micron Technology, Inc. (NASDAQ:MU) is the most popular stock in this table. On the other hand Truist Financial Corporation (NYSE:TFC) is the least popular one with only 29 bullish hedge fund positions. Dollar General Corp. (NYSE:DG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DG is 46.1. 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 positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 percentage points. These stocks gained 31.6% in 2020 through December 2nd and beat the market again by 16 percentage points. Unfortunately DG wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on DG were disappointed as the stock returned 4% since the end of September (through 12/2) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.