Do Hedge Funds Love Dollar Tree, Inc. (DLTR)?

It was not entirely clear whether the recent broader market sell-off made U.S. equity valuations undervalued, but it definitely made them more attractive. It is worth mentioning that Russell 2000 ETF (IWM) underperformed the broad-market S&P 500 ETF by more than 14 percentage points during the period of June 25, 2015 through October 30, 2015. This clearly points to the fact that most investors, including hedge fund firms and institutional investors, heavily cut their exposure to high-potential (but seemingly riskier) small-cap stocks during the bloody third quarter. So let’s take a glance at the smart money sentiment towards Dollar Tree, Inc. (NASDAQ:DLTR) and see how it was affected.

Dollar Tree, Inc. (NASDAQ:DLTR) investors should pay attention to an increase in hedge fund sentiment in recent months. DLTR was in 59 hedge funds’ portfolios at the end of the fourth quarter of 2015. There were 52 hedge funds in our database with DLTR positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as T. Rowe Price Group, Inc. (NASDAQ:TROW), Interactive Brokers Group, Inc. (NASDAQ:IBKR), and Hartford Financial Services Group Inc (NYSE:HIG) to gather more data points.

In the eyes of most stock holders, hedge funds are perceived as underperforming, old financial vehicles of yesteryear. While there are greater than 8000 funds with their doors open at present, Our researchers look at the leaders of this club, around 800 funds. Most estimates calculate that this group of people manage the lion’s share of the hedge fund industry’s total capital, and by following their best picks, Insider Monkey has spotted numerous investment strategies that have historically surpassed Mr. Market. Insider Monkey’s small-cap hedge fund strategy outstripped the S&P 500 index by 12 percentage points a year for a decade in their back tests.

Dollar Tree has been a good investment that paid off over the long-run, having registered gains of more than 68% for the last three years. Last year, Dollar Tree completed the acquisition of Family Dollar and in the company’s last earnings report, CEO Bob Sasser said “[…] we successfully completed the acquisition of Family Dollar; we initiated, and remain on schedule with, the integration of our companies; and we are on track to achieve our stated synergy targets. Looking ahead, we are committed to growing and improving our Dollar Tree and Family Dollar businesses to better serve more customers, while delivering long-term value to our shareholders.”

More specifically, following the merger, Dollar Tree’s consolidated net sales surged by nearly 117% on the year to $5.37 billion in the fourth quarter of fiscal 2015 (ended January 30), mainly due to $2.68 billion in sales from the Family Dollar segment. Nevertheless, the revenue missed the Street’s estimates of $5.41 billion, while its EPS of $1.01, was lower than the consensus estimate by $0.06.

With all of this in mind, we’re going to view the recent action surrounding Dollar Tree, Inc. (NASDAQ:DLTR).

What does the smart money think about Dollar Tree, Inc. (NASDAQ:DLTR)?

Heading into 2016, a total of 59 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from one quarter earlier. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Stephen Mandel’s Lone Pine Capital has the largest position in Dollar Tree, Inc. (NASDAQ:DLTR), worth close to $1.0189 billion, comprising 4.4% of its total 13F portfolio. Sitting at the No. 2 spot is Akre Capital Management, led by Charles Akre, holding a $323.1 million position; the fund has 7.2% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish contain Phill Gross and Robert Atchinson’s Adage Capital Management, Peter Adam Hochfelder’s Brahman Capital and Eric W. Mandelblatt’s Soroban Capital Partners.

As industry-wide interest jumped, key money managers have been driving this bullishness. Soroban Capital Partners, managed by Eric W. Mandelblatt, established the largest position in Dollar Tree, Inc. (NASDAQ:DLTR). Soroban Capital Partners had $179.5 million invested in the company at the end of the fourth quarter. John Griffin’s Blue Ridge Capital also initiated a $140.2 million position during the quarter. The following funds were also among the new DLTR investors: Gabriel Plotkin’s Melvin Capital Management, Ken Heebner’s Capital Growth Management, and Julian Robertson’s Tiger Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Dollar Tree, Inc. (NASDAQ:DLTR) but similarly valued. We will take a look at T. Rowe Price Group, Inc. (NASDAQ:TROW), Interactive Brokers Group, Inc. (NASDAQ:IBKR), Hartford Financial Services Group Inc (NYSE:HIG), and HCP, Inc. (NYSE:HCP). This group of stocks’ market values match DLTR’s market value.

As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $676 million. That figure was $4.29 billion in DLTR’s case. Hartford Financial Services Group Inc (NYSE:HIG) is the most popular stock in this table. On the other hand, HCP, Inc. (NYSE:HCP) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Dollar Tree, Inc. (NASDAQ:DLTR) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

Disclosure: none