Hedge Funds Are Souring On Chewy, Inc. (CHWY)

After several tireless days we have finished crunching the numbers from nearly 900 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of September 30th. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Chewy, Inc. (NYSE:CHWY).

Is Chewy, Inc. (NYSE:CHWY) a buy, sell, or hold? Prominent investors were becoming less confident. The number of long hedge fund positions were cut by 11 in recent months. Chewy, Inc. (NYSE:CHWY) was in 32 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 46. Our calculations also showed that CHWY isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings). There were 43 hedge funds in our database with CHWY positions at the end of the second quarter.

Paul Marshall of Marshall Wace

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind let’s view the key hedge fund action regarding Chewy, Inc. (NYSE:CHWY).

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

Heading into the fourth quarter of 2021, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -26% from the second quarter of 2021. By comparison, 46 hedge funds held shares or bullish call options in CHWY a year ago. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Zevenbergen Capital Investments, managed by Nancy Zevenbergen, holds the most valuable position in Chewy, Inc. (NYSE:CHWY). Zevenbergen Capital Investments has a $77.1 million position in the stock, comprising 1.5% of its 13F portfolio. The second largest stake is held by Citadel Investment Group, managed by Ken Griffin, which holds a $58.7 million call position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors with similar optimism encompass Paul Marshall and Ian Wace’s Marshall Wace LLP, John Overdeck and David Siegel’s Two Sigma Advisors and Brett Barakett’s Tremblant Capital. In terms of the portfolio weights assigned to each position Berylson Capital Partners allocated the biggest weight to Chewy, Inc. (NYSE:CHWY), around 8.95% of its 13F portfolio. Rip Road Capital is also relatively very bullish on the stock, earmarking 5.41 percent of its 13F equity portfolio to CHWY.

Because Chewy, Inc. (NYSE:CHWY) has faced declining sentiment from the smart money, we can see that there was a specific group of hedgies who sold off their entire stakes heading into Q4. Interestingly, Anand Parekh’s Alyeska Investment Group said goodbye to the largest investment of all the hedgies tracked by Insider Monkey, comprising about $13 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also dropped its stock, about $10.6 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 11 funds heading into Q4.

Let’s go over hedge fund activity in other stocks similar to Chewy, Inc. (NYSE:CHWY). These stocks are United Microelectronics Corp (NYSE:UMC), Eversource Energy (NYSE:ES), Las Vegas Sands Corp. (NYSE:LVS), Yandex NV (NASDAQ:YNDX), Synchrony Financial (NYSE:SYF), WEC Energy Group, Inc. (NYSE:WEC), and Occidental Petroleum Corporation (NYSE:OXY). This group of stocks’ market valuations resemble CHWY’s market valuation.

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As you can see these stocks had an average of 32.4 hedge funds with bullish positions and the average amount invested in these stocks was $1094 million. That figure was $376 million in CHWY’s case. Occidental Petroleum Corporation (NYSE:OXY) is the most popular stock in this table. On the other hand United Microelectronics Corp (NYSE:UMC) is the least popular one with only 13 bullish hedge fund positions. Chewy, Inc. (NYSE:CHWY) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CHWY is 35.1. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.6% in 2021 through November 30th and surpassed the market again by 5.6 percentage points. Unfortunately CHWY wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); CHWY investors were disappointed as the stock returned 0.2% since the end of September (through 11/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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

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