Were Hedge Funds Right About Dollar General Corp. (DG)?

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s analyze whether Dollar General Corp. (NYSE:DG) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.

Dollar General Corp. (NYSE:DG) investors should be aware of an increase in hedge fund interest lately. DG was in 50 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 49 hedge funds in our database with DG holdings at the end of the previous quarter. Our calculations also showed that DG isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 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 more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.


Steven Cohen of Point72 Asset Management

Now we’re going to take a gander at the key hedge fund action regarding Dollar General Corp. (NYSE:DG).

What does smart money think about Dollar General Corp. (NYSE:DG)?

Heading into the first quarter of 2020, a total of 50 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 2% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards DG over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Two Sigma Advisors was the largest shareholder of Dollar General Corp. (NYSE:DG), with a stake worth $272.9 million reported as of the end of September. Trailing Two Sigma Advisors was Orbis Investment Management, which amassed a stake valued at $264.6 million. AQR Capital Management, Point72 Asset Management, and Millennium 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 12th Street Asset Management allocated the biggest weight to Dollar General Corp. (NYSE:DG), around 7.34% of its 13F portfolio. Emerson Point Capital is also relatively very bullish on the stock, earmarking 5.23 percent of its 13F equity portfolio to DG.

With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Candlestick Capital Management, managed by Jack Woodruff, created the largest position in Dollar General Corp. (NYSE:DG). Candlestick Capital Management had $35.6 million invested in the company at the end of the quarter. Alexander Mitchell’s Scopus Asset Management also made a $15.5 million investment in the stock during the quarter. The following funds were also among the new DG investors: Brian Scudieri’s Kehrs Ridge Capital, Benjamin A. Smith’s Laurion Capital Management, and Parvinder Thiara’s Athanor Capital.

Let’s now take a look at hedge fund activity in other stocks similar to Dollar General Corp. (NYSE:DG). We will take a look at Manulife Financial Corporation (NYSE:MFC), FedEx Corporation (NYSE:FDX), The Kraft Heinz Company (NASDAQ:KHC), and NetEase, Inc (NASDAQ:NTES). All of these stocks’ market caps are closest to DG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MFC 19 284486 0
FDX 45 1481070 0
KHC 34 10747172 -5
NTES 44 3818274 12
Average 35.5 4082751 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.5 hedge funds with bullish positions and the average amount invested in these stocks was $4083 million. That figure was $2076 million in DG’s case. FedEx Corporation (NYSE:FDX) is the most popular stock in this table. On the other hand Manulife Financial Corporation (NYSE:MFC) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Dollar General Corp. (NYSE:DG) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 1.3% in 2020 through May 1st but still managed to beat the market by 12.9 percentage points. Hedge funds were also right about betting on DG as the stock returned 11.4% so far in 2020 (through May 1st) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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