Is DRI A Good Stock To Buy Now?

Is Darden Restaurants, Inc. (NYSE:DRI) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Is DRI a good stock to buy now? Investors who are in the know were taking a pessimistic view. The number of bullish hedge fund positions were cut by 8 in recent months. Darden Restaurants, Inc. (NYSE:DRI) was in 41 hedge funds’ portfolios at the end of September. The all time high for this statistic is 52. Our calculations also showed that DRI 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 49 hedge funds in our database with DRI positions at the end of the second quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Today there are a large number of signals market participants employ to analyze publicly traded companies. A pair of the most useful signals are hedge fund and insider trading moves. We have shown that, historically, those who follow the top picks of the top fund managers can outclass the S&P 500 by a healthy margin (see the details here).


Ray Dalio of Bridgewater Associates

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis 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. With all of this in mind we’re going to take a gander at the new hedge fund action regarding Darden Restaurants, Inc. (NYSE:DRI).

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

At third quarter’s end, a total of 41 of the hedge funds tracked by Insider Monkey were long this stock, a change of -16% from the second quarter of 2020. On the other hand, there were a total of 31 hedge funds with a bullish position in DRI a year ago. 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 Darden Restaurants, Inc. (NYSE:DRI) was held by Viking Global, which reported holding $144.7 million worth of stock at the end of September. It was followed by Melvin Capital Management with a $120.9 million position. Other investors bullish on the company included Soros Fund Management, Dorsal Capital Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Dorsal Capital Management allocated the biggest weight to Darden Restaurants, Inc. (NYSE:DRI), around 7.38% of its 13F portfolio. DG Capital Management is also relatively very bullish on the stock, earmarking 5.46 percent of its 13F equity portfolio to DRI.

Due to the fact that Darden Restaurants, Inc. (NYSE:DRI) has experienced bearish sentiment from the smart money, it’s safe to say that there lies a certain “tier” of funds that elected to cut their entire stakes last quarter. It’s worth mentioning that Steve Cohen’s Point72 Asset Management sold off the biggest stake of the 750 funds tracked by Insider Monkey, valued at about $70.2 million in stock. Bruce Emery’s fund, Greenvale Capital, also sold off its stock, about $53 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 8 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to Darden Restaurants, Inc. (NYSE:DRI). We will take a look at International Flavors & Fragrances Inc (NYSE:IFF), Essex Property Trust Inc (NYSE:ESS), Logitech International SA (NASDAQ:LOGI), 10x Genomics, Inc. (NASDAQ:TXG), Masimo Corporation (NASDAQ:MASI), Avantor, Inc. (NYSE:AVTR), and Telefonica Brasil SA (NYSE:VIV). All of these stocks’ market caps resemble DRI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
IFF 31 202593 0
ESS 28 549766 0
LOGI 15 406297 2
TXG 31 527141 12
MASI 27 171338 -5
AVTR 56 1405872 22
VIV 13 96138 1
Average 28.7 479878 4.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.7 hedge funds with bullish positions and the average amount invested in these stocks was $480 million. That figure was $1183 million in DRI’s case. Avantor, Inc. (NYSE:AVTR) is the most popular stock in this table. On the other hand Telefonica Brasil SA (NYSE:VIV) is the least popular one with only 13 bullish hedge fund positions. Darden Restaurants, Inc. (NYSE:DRI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DRI is 53.2. 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 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 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on DRI as the stock returned 12% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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