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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 take a look at whether The Home Depot, Inc. (NYSE:HD) is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
The Home Depot, Inc. (NYSE:HD) investors should be aware of an increase in hedge fund sentiment lately. HD was in 91 hedge funds’ portfolios at the end of December. There were 70 hedge funds in our database with HD positions at the end of the previous quarter. Our calculations also showed that HD ranked 23rd 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).
If you listen to the mainstream financial media, you should avoid stock picking and invest in low-cost index funds. This is indeed what you should do if you want to generate average returns. Mainstream financial media journalists try to make you believe that it isn’t possible to pick winners and losers, and you should ignore the stock picks of hedge fund managers. You may remember reading an article in the WSJ that said “random dart throwing monkeys beat hedge fund stars”. What they fail to tell you is that the top 5 hedge fund stocks returned more than 30% since the end of 2018 and beat the S&P 500 Index by nearly 25 percentage points. You can’t explain this kind of outperformance by luck or coincidence. WSJ will need an army of monkeys to throw darts and tens of thousands of attempts to match these returns.
Frank Brosens of Taconic Capital
We leave no stone unturned when looking for the next great investment idea. For example, this trader is claiming triple digit returns, so we check out his latest trade recommendations We are probably at the peak of the COVID-19 pandemic, so we check out this biotech investor’s coronavirus picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a glance at the new hedge fund action regarding The Home Depot, Inc. (NYSE:HD).
What have hedge funds been doing with The Home Depot, Inc. (NYSE:HD)?
Heading into the first quarter of 2020, a total of 91 of the hedge funds tracked by Insider Monkey were long this stock, a change of 30% from one quarter earlier. On the other hand, there were a total of 58 hedge funds with a bullish position in HD a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in The Home Depot, Inc. (NYSE:HD) was held by Fisher Asset Management, which reported holding $1333.6 million worth of stock at the end of September. It was followed by AQR Capital Management with a $563.2 million position. Other investors bullish on the company included Two Sigma Advisors, Citadel Investment Group, and Adage Capital Management. In terms of the portfolio weights assigned to each position Chilton Investment Company allocated the biggest weight to The Home Depot, Inc. (NYSE:HD), around 5.58% of its 13F portfolio. Kehrs Ridge Capital is also relatively very bullish on the stock, setting aside 5.31 percent of its 13F equity portfolio to HD.
With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. Point72 Asset Management, managed by Steve Cohen, created the most outsized position in The Home Depot, Inc. (NYSE:HD). Point72 Asset Management had $80.4 million invested in the company at the end of the quarter. Gregg Moskowitz’s Interval Partners also initiated a $54.4 million position during the quarter. The other funds with new positions in the stock are Josh Donfeld and David Rogers’s Castle Hook Partners, Jack Woodruff’s Candlestick Capital Management, and Frank Brosens’s Taconic Capital.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as The Home Depot, Inc. (NYSE:HD) but similarly valued. We will take a look at The Coca-Cola Company (NYSE:KO), Merck & Co., Inc. (NYSE:MRK), Chevron Corporation (NYSE:CVX), and Wells Fargo & Company (NYSE:WFC). All of these stocks’ market caps resemble HD’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KO | 51 | 23797078 | -5 |
| MRK | 77 | 5164143 | -3 |
| CVX | 47 | 2391610 | -6 |
| WFC | 79 | 23878918 | 12 |
| Average | 63.5 | 13807937 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 63.5 hedge funds with bullish positions and the average amount invested in these stocks was $13808 million. That figure was $4996 million in HD’s case. Wells Fargo & Company (NYSE:WFC) is the most popular stock in this table. On the other hand Chevron Corporation (NYSE:CVX) is the least popular one with only 47 bullish hedge fund positions. Compared to these stocks The Home Depot, Inc. (NYSE:HD) 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 lost 1.0% in 2020 through April 20th but still managed to beat the market by 11 percentage points. Hedge funds were also right about betting on HD, though not to the same extent, as the stock returned -5% in 2020 (through April 20th) and outperformed the market as well.
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.
