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Were Hedge Funds Right About HD Supply Holdings Inc (HDS)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of HD Supply Holdings Inc (NASDAQ:HDS) based on that data and determine whether they were really smart about the stock.

Is HD Supply Holdings Inc (NASDAQ:HDS) a splendid investment now? The best stock pickers were getting more optimistic. The number of bullish hedge fund bets improved by 2 recently. Our calculations also showed that HDS isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

To most market participants, hedge funds are viewed as unimportant, outdated investment tools of the past. While there are more than 8000 funds trading today, Our researchers look at the crème de la crème of this club, approximately 850 funds. It is estimated that this group of investors manage bulk of the hedge fund industry’s total asset base, and by keeping track of their first-class investments, Insider Monkey has come up with several investment strategies that have historically beaten Mr. Market. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Barry Rosenstein JANA PARTNERS

Barry Rosenstein of JANA Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the key hedge fund action encompassing HD Supply Holdings Inc (NASDAQ:HDS).

What have hedge funds been doing with HD Supply Holdings Inc (NASDAQ:HDS)?

At Q1’s end, a total of 40 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in HDS over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Seth Klarman’s Baupost Group has the largest position in HD Supply Holdings Inc (NASDAQ:HDS), worth close to $176.8 million, accounting for 2.6% of its total 13F portfolio. The second largest stake is held by Iridian Asset Management, led by David Cohen and Harold Levy, holding a $151.1 million position; 3.7% of its 13F portfolio is allocated to the company. Remaining peers that are bullish consist of Ricky Sandler’s Eminence Capital, D. E. Shaw’s D E Shaw and Barry Rosenstein’s JANA Partners. In terms of the portfolio weights assigned to each position Marathon Partners allocated the biggest weight to HD Supply Holdings Inc (NASDAQ:HDS), around 15.37% of its 13F portfolio. Impactive Capital is also relatively very bullish on the stock, dishing out 11.11 percent of its 13F equity portfolio to HDS.

As aggregate interest increased, some big names have been driving this bullishness. Baupost Group, managed by Seth Klarman, established the most valuable position in HD Supply Holdings Inc (NASDAQ:HDS). Baupost Group had $176.8 million invested in the company at the end of the quarter. Ricky Sandler’s Eminence Capital also initiated a $136.5 million position during the quarter. The other funds with new positions in the stock are Clint Carlson’s Carlson Capital, Angela Aldrich’s Bayberry Capital Partners, and Andrew Byington’s Appian Way Asset Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as HD Supply Holdings Inc (NASDAQ:HDS) but similarly valued. These stocks are Euronet Worldwide, Inc. (NASDAQ:EEFT), Enel Chile S.A. (NYSE:ENIC), Forty Seven, Inc. (NASDAQ:FTSV), and Sensata Technologies Holding plc (NYSE:ST). This group of stocks’ market values match HDS’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EEFT 30 240212 -17
ENIC 8 17690 2
FTSV 40 1084502 22
ST 26 699556 3
Average 26 510490 2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $510 million. That figure was $856 million in HDS’s case. Forty Seven, Inc. (NASDAQ:FTSV) is the most popular stock in this table. On the other hand Enel Chile S.A. (NYSE:ENIC) is the least popular one with only 8 bullish hedge fund positions. HD Supply Holdings Inc (NASDAQ:HDS) is not the most popular stock in this group but hedge fund interest is still above average. 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 gained 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on HDS, though not to the same extent, as the stock returned 21.9% during the second quarter and outperformed the market as well.

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