Is GO A Good Stock To Buy Now?

After several tireless days we have finished crunching the numbers from nearly 817 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of September 30th. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Grocery Outlet Holding Corp. (NASDAQ:GO).

Is GO a good stock to buy now? Prominent investors were becoming less confident. The number of long hedge fund positions retreated by 1 recently. Grocery Outlet Holding Corp. (NASDAQ:GO) was in 18 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 21. Our calculations also showed that GO 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).

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

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 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.

David Harding

David Harding of Winton Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Now we’re going to take a look at the recent hedge fund action encompassing Grocery Outlet Holding Corp. (NASDAQ:GO).

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

At Q3’s end, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in GO over the last 21 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

Is GO A Good Stock To Buy?

Among these funds, Renaissance Technologies held the most valuable stake in Grocery Outlet Holding Corp. (NASDAQ:GO), which was worth $38.9 million at the end of the third quarter. On the second spot was Select Equity Group which amassed $20.9 million worth of shares. Highside Global Management, GLG Partners, and Winton Capital Management 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 Highside Global Management allocated the biggest weight to Grocery Outlet Holding Corp. (NASDAQ:GO), around 8.22% of its 13F portfolio. PDT Partners is also relatively very bullish on the stock, dishing out 0.38 percent of its 13F equity portfolio to GO.

Because Grocery Outlet Holding Corp. (NASDAQ:GO) has experienced a decline in interest from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of fund managers who were dropping their full holdings by the end of the third quarter. It’s worth mentioning that Simon Sadler’s Segantii Capital dumped the largest position of the 750 funds watched by Insider Monkey, comprising close to $17.3 million in stock, and Sander Gerber’s Hudson Bay Capital Management was right behind this move, as the fund cut about $3.7 million worth. These moves are interesting, as aggregate hedge fund interest fell by 1 funds by the end of the third quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Grocery Outlet Holding Corp. (NASDAQ:GO) but similarly valued. We will take a look at Halozyme Therapeutics, Inc. (NASDAQ:HALO), Rexnord Corp (NYSE:RXN), SailPoint Technologies Holdings, Inc. (NYSE:SAIL), 1Life Healthcare, Inc. (NASDAQ:ONEM), JBG SMITH Properties (NYSE:JBGS), UniFirst Corp (NYSE:UNF), and Enstar Group Ltd. (NASDAQ:ESGR). This group of stocks’ market values resemble GO’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HALO 26 206784 0
RXN 24 319104 -3
SAIL 29 765976 8
ONEM 22 378001 2
JBGS 17 268888 -8
UNF 19 95832 0
ESGR 13 343430 1
Average 21.4 339716 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.4 hedge funds with bullish positions and the average amount invested in these stocks was $340 million. That figure was $119 million in GO’s case. SailPoint Technologies Holdings, Inc. (NYSE:SAIL) is the most popular stock in this table. On the other hand Enstar Group Ltd. (NASDAQ:ESGR) is the least popular one with only 13 bullish hedge fund positions. Grocery Outlet Holding Corp. (NASDAQ:GO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for GO is 45.3. 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 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 surpassed the market again by 15.8 percentage points. Unfortunately GO wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); GO investors were disappointed as the stock returned -3.1% since the end of September (through 12/14) 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 most of these stocks already outperformed the market in 2020.

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