Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Dollar General Corp. (NYSE:DG)? The smart money sentiment can provide an answer to this question.
Is Dollar General Corp. (NYSE:DG) the right investment to pursue these days? Money managers were taking a pessimistic view. The number of bullish hedge fund bets dropped by 5 in recent months. Dollar General Corp. (NYSE:DG) was in 52 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 67. Our calculations also showed that DG isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 57 hedge funds in our database with DG holdings at the end of December.
In the eyes of most stock holders, hedge funds are seen as unimportant, outdated financial vehicles of years past. While there are more than 8000 funds trading at present, Our researchers choose to focus on the elite of this club, about 850 funds. Most estimates calculate that this group of people watch over most of the smart money’s total capital, and by tracking their inimitable picks, Insider Monkey has spotted a number of investment strategies that have historically surpassed the broader indices. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Also, our monthly newsletter’s portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .
Aaron Cowen of Suvretta Capital Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund wants to buy this $29 biotech stock for $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now let’s check out the recent hedge fund action surrounding Dollar General Corp. (NYSE:DG).
Do Hedge Funds Think DG Is A Good Stock To Buy Now?
At first quarter’s end, a total of 52 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards DG over the last 23 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, BlueSpruce Investments held the most valuable stake in Dollar General Corp. (NYSE:DG), which was worth $573.2 million at the end of the fourth quarter. On the second spot was Suvretta Capital Management which amassed $212.1 million worth of shares. Renaissance Technologies, Arrowstreet Capital, 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 BlueSpruce Investments allocated the biggest weight to Dollar General Corp. (NYSE:DG), around 11.37% of its 13F portfolio. Lionstone Capital Management is also relatively very bullish on the stock, earmarking 7.14 percent of its 13F equity portfolio to DG.
Due to the fact that Dollar General Corp. (NYSE:DG) has experienced bearish sentiment from the entirety of the hedge funds we track, logic holds that there is a sect of hedgies who sold off their full holdings by the end of the first quarter. It’s worth mentioning that Dmitry Balyasny’s Balyasny Asset Management dropped the biggest position of all the hedgies tracked by Insider Monkey, totaling an estimated $43.8 million in stock. John Overdeck and David Siegel’s fund, Two Sigma Advisors, also said goodbye to its stock, about $8.6 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 5 funds by the end of the first quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Dollar General Corp. (NYSE:DG) but similarly valued. We will take a look at Keurig Dr Pepper Inc. (NASDAQ:KDP), Newmont Corporation (NYSE:NEM), Monster Beverage Corp (NASDAQ:MNST), Marriott International Inc (NYSE:MAR), Enterprise Products Partners L.P. (NYSE:EPD), Freeport-McMoRan Inc. (NYSE:FCX), and Ford Motor Company (NYSE:F). This group of stocks’ market valuations are similar to DG’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KDP | 30 | 934902 | 1 |
| NEM | 43 | 994802 | -7 |
| MNST | 45 | 2382495 | 1 |
| MAR | 58 | 3068754 | 0 |
| EPD | 26 | 299289 | -4 |
| FCX | 68 | 3290981 | 7 |
| F | 49 | 2197658 | 8 |
| Average | 45.6 | 1881269 | 0.9 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 45.6 hedge funds with bullish positions and the average amount invested in these stocks was $1881 million. That figure was $2342 million in DG’s case. Freeport-McMoRan Inc. (NYSE:FCX) is the most popular stock in this table. On the other hand Enterprise Products Partners L.P. (NYSE:EPD) is the least popular one with only 26 bullish hedge fund positions. Dollar General Corp. (NYSE:DG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DG is 54.2. 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 positive signal but 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 17.2% in 2021 through June 11th and beat the market again by 3.3 percentage points. Unfortunately DG wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on DG were disappointed as the stock returned 3.5% since the end of March (through 6/11) 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 many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.
