We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter. One of these stocks was HD Supply Holdings Inc (NASDAQ:HDS).
HD Supply Holdings Inc (NASDAQ:HDS) has seen an increase in enthusiasm from smart money lately. HDS was in 38 hedge funds’ portfolios at the end of December. There were 35 hedge funds in our database with HDS holdings at the end of the previous quarter. Our calculations also showed that HDS isn’t 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).
According to most market participants, hedge funds are viewed as underperforming, old financial vehicles of the past. While there are greater than 8000 funds in operation at the moment, Our experts choose to focus on the aristocrats of this club, around 850 funds. These money managers manage most of all hedge funds’ total asset base, and by tailing their matchless picks, Insider Monkey has deciphered a few investment strategies that have historically outperformed the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Barry Rosenstein of JANA Partners
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. With all of this in mind let’s analyze the new hedge fund action encompassing HD Supply Holdings Inc (NASDAQ:HDS).
What does smart money think about HD Supply Holdings Inc (NASDAQ:HDS)?
At Q4’s end, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from the previous quarter. By comparison, 31 hedge funds held shares or bullish call options in HDS a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
Among these funds, Iridian Asset Management held the most valuable stake in HD Supply Holdings Inc (NASDAQ:HDS), which was worth $178.6 million at the end of the third quarter. On the second spot was D E Shaw which amassed $124.6 million worth of shares. OZ Management, JANA Partners, and AQR Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Marathon Partners allocated the biggest weight to HD Supply Holdings Inc (NASDAQ:HDS), around 14.29% of its 13F portfolio. Impactive Capital is also relatively very bullish on the stock, setting aside 13.42 percent of its 13F equity portfolio to HDS.
As aggregate interest increased, key hedge funds have jumped into HD Supply Holdings Inc (NASDAQ:HDS) headfirst. Impactive Capital, managed by Lauren Taylor Wolfe, created the most outsized position in HD Supply Holdings Inc (NASDAQ:HDS). Impactive Capital had $24.1 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also made a $5.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Peter Muller’s PDT Partners, Frederick DiSanto’s Ancora Advisors, and Ray Dalio’s Bridgewater Associates.
Let’s check out hedge fund activity in other stocks similar to HD Supply Holdings Inc (NASDAQ:HDS). We will take a look at Moderna, Inc. (NASDAQ:MRNA), Flowserve Corporation (NYSE:FLS), Alteryx, Inc. (NYSE:AYX), and Mellanox Technologies, Ltd. (NASDAQ:MLNX). All of these stocks’ market caps are closest to HDS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MRNA | 12 | 256023 | 3 |
| FLS | 26 | 286522 | 4 |
| AYX | 44 | 961060 | 0 |
| MLNX | 39 | 1468992 | -3 |
| Average | 30.25 | 743149 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.25 hedge funds with bullish positions and the average amount invested in these stocks was $743 million. That figure was $950 million in HDS’s case. Alteryx, Inc. (NYSE:AYX) is the most popular stock in this table. On the other hand Moderna, Inc. (NASDAQ:MRNA) is the least popular one with only 12 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately HDS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on HDS were disappointed as the stock returned -30.4% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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.
