We at Insider Monkey have gone over 817 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of September 30th. In this article, we look at what those funds think of The Home Depot, Inc. (NYSE:HD) based on that data.
Is The Home Depot, Inc. (NYSE:HD) a good stock to buy now? Investors who are in the know were getting less optimistic. The number of long hedge fund bets decreased by 12 recently. The Home Depot, Inc. (NYSE:HD) was in 73 hedge funds’ portfolios at the end of September. The all time high for this statistics is 91. Our calculations also showed that HD 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.
Phillip Gross of Adage Capital
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. With all of this in mind we’re going to review the latest hedge fund action surrounding The Home Depot, Inc. (NYSE:HD).
What does smart money think about The Home Depot, Inc. (NYSE:HD)?
Heading into the fourth quarter of 2020, a total of 73 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the previous quarter. The graph below displays the number of hedge funds with bullish position in HD over the last 21 quarters. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
More specifically, Fisher Asset Management was the largest shareholder of The Home Depot, Inc. (NYSE:HD), with a stake worth $1820.9 million reported as of the end of September. Trailing Fisher Asset Management was AQR Capital Management, which amassed a stake valued at $529 million. Two Sigma Advisors, Citadel Investment Group, and Adage 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 Pittencrieff Partners – Gabalex Capital allocated the biggest weight to The Home Depot, Inc. (NYSE:HD), around 7.77% of its 13F portfolio. Chilton Investment Company is also relatively very bullish on the stock, designating 6.55 percent of its 13F equity portfolio to HD.
Judging by the fact that The Home Depot, Inc. (NYSE:HD) has faced bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of hedge funds who were dropping their entire stakes last quarter. It’s worth mentioning that Stanley Druckenmiller’s Duquesne Capital said goodbye to the largest investment of the 750 funds watched by Insider Monkey, totaling an estimated $77.4 million in stock, and Josh Donfeld and David Rogers’s Castle Hook Partners was right behind this move, as the fund said goodbye to about $63.5 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 12 funds last quarter.
Let’s go over hedge fund activity in other stocks similar to The Home Depot, Inc. (NYSE:HD). These stocks are UnitedHealth Group Inc. (NYSE:UNH), JPMorgan Chase & Co. (NYSE:JPM), Verizon Communications Inc. (NYSE:VZ), Adobe Inc. (NASDAQ:ADBE), Paypal Holdings Inc (NASDAQ:PYPL), salesforce.com, inc. (NYSE:CRM), and The Walt Disney Company (NYSE:DIS). This group of stocks’ market caps resemble HD’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| UNH | 89 | 8963458 | -7 |
| JPM | 118 | 6058434 | -5 |
| VZ | 65 | 2759911 | -3 |
| ADBE | 106 | 10503167 | 2 |
| PYPL | 150 | 11476857 | 6 |
| CRM | 106 | 11087534 | -1 |
| DIS | 112 | 8983570 | 7 |
| Average | 106.6 | 8547562 | -0.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 106.6 hedge funds with bullish positions and the average amount invested in these stocks was $8548 million. That figure was $4957 million in HD’s case. Paypal Holdings Inc (NASDAQ:PYPL) is the most popular stock in this table. On the other hand Verizon Communications Inc. (NYSE:VZ) is the least popular one with only 65 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 21.8. 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 November 27th and surpassed the market again by 16.1 percentage points. Unfortunately HD wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); HD investors were disappointed as the stock returned -0.6% since the end of September (through 11/27) 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.
