Darden Restaurants, Inc. (DRI): Are Hedge Funds Right About This Stock?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 887 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article we look at what those investors think of Darden Restaurants, Inc. (NYSE:DRI).

Darden Restaurants, Inc. (NYSE:DRI) was in 42 hedge funds’ portfolios at the end of December. The all time high for this statistic is 52. DRI shareholders have witnessed an increase in enthusiasm from smart money recently. There were 41 hedge funds in our database with DRI positions at the end of the third quarter. Our calculations also showed that DRI isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 124 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Andreas Halvorsen of Viking Global

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

At Q4’s end, a total of 42 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 2% from the previous quarter. By comparison, 33 hedge funds held shares or bullish call options in DRI a year ago. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

The largest stake in Darden Restaurants, Inc. (NYSE:DRI) was held by Holocene Advisors, which reported holding $208.5 million worth of stock at the end of December. It was followed by Citadel Investment Group with a $200.4 million position. Other investors bullish on the company included Melvin Capital Management, D1 Capital Partners, and Viking Global. In terms of the portfolio weights assigned to each position Dorsal Capital Management allocated the biggest weight to Darden Restaurants, Inc. (NYSE:DRI), around 6.13% of its 13F portfolio. MIG Capital is also relatively very bullish on the stock, setting aside 2.95 percent of its 13F equity portfolio to DRI.

Now, specific money managers were breaking ground themselves. D1 Capital Partners, managed by Daniel Sundheim, created the biggest position in Darden Restaurants, Inc. (NYSE:DRI). D1 Capital Partners had $138.9 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also made a $100.9 million investment in the stock during the quarter. The other funds with brand new DRI positions are Brad Stephens’s Six Columns Capital, Kamyar Khajavi’s MIK Capital, and Richard Schimel and Lawrence Sapanski’s Cinctive Capital Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Darden Restaurants, Inc. (NYSE:DRI) but similarly valued. We will take a look at Regions Financial Corporation (NYSE:RF), Essex Property Trust Inc (NYSE:ESS), Caesars Entertainment Inc. (NASDAQ:CZR), CarMax Inc (NYSE:KMX), Shinhan Financial Group Co., Ltd. (NYSE:SHG), Waters Corporation (NYSE:WAT), and Hewlett Packard Enterprise Company (NYSE:HPE). This group of stocks’ market values are similar to DRI’s market value.

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As you can see these stocks had an average of 33.6 hedge funds with bullish positions and the average amount invested in these stocks was $912 million. That figure was $1411 million in DRI’s case. Caesars Entertainment Inc. (NASDAQ:CZR) is the most popular stock in this table. On the other hand Shinhan Financial Group Co., Ltd. (NYSE:SHG) is the least popular one with only 7 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 57.6. 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 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. Hedge funds were also right about betting on DRI as the stock returned 24.3% since the end of Q4 (through 4/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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