Polen Capital, an investment management firm, published its “Polen Focus Growth” first quarter 2021 investor letter – a copy of which can be downloaded here. A return of 1.81% was delivered by the fund for the Q1 of 2021, outperforming its Russell 1000 Growth benchmark that delivered a 0.95% return, but below the S&P 500 Index that had a 6.18% gain for the same period. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.
Polen Focus Growth Fund, in its Q1 2021 investor letter, mentioned Dollar General Corporation (NYSE: DG), and shared their insights on the company. Dollar General Corporation is a Goodlettsville, Tennessee-based variety store company that currently has a $49 billion market capitalization. Since the beginning of the year, DG delivered a -2.15% return, while its 12-month gains are up by 13.05%. As of May 13, 2021, the stock closed at $205.76 per share.
Here is what Polen Focus Growth Fund has to say about Dollar General Corporation in its Q1 2021 investor letter:
“We have eliminated Dollar General to fund the purchase of Amazon, which we consider a superior investment opportunity. We feel Dollar General has been an excellent “Safety” holding for us, especially in 2020. Since our initial purchase in July 2016, Dollar General shares have more than doubled, beating the S&P 500 and slightly underperforming the Index (our actual returns were higher, as we had added to the position on a drawdown soon after our initial purchase).
During the COVID drawdown in early 2020, Dollar General declined 10% versus 25% for the Index and 29% for the S&P 500. We had expected the company to grow its store footage 5% per year with same-store sales increasing 2-3% and yielding revenue growth of 7-8% over the long term. Slight margin expansion would lead to 10%+ EPS growth, according to our research.
2020 could have pulled forward more than three years of revenue and earnings growth into a single year. The pandemic and quarantining led people to stock up on everyday consumables, and stimulus checks and extended and elevated unemployment benefits have allowed Dollar General customers to spend more. In fact, the company recently reported full-year 2020 results in which revenue grew 22% and EPS grew 60%. These results included over 200 basis points of margin expansion off a low base of 8.3% operating margins in 2019. This compares to margin expansion of tens of basis points in typical market environments. Dollar General now has over 17,000 stores. There could be more than three years of approximately 5% annual square-footage growth left before maturing at over 20,000 stores. Same-store sales growth could be in the 3-4% range for some time, and we think the company remains extremely well run. We simply believe our investment in Amazon is a superior alternative.”
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Our calculations show that Dollar General Corporation (NYSE: DG) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the fourth quarter of 2020, Dollar General Corporation was in 57 hedge fund portfolios, compared to 56 funds in the third quarter. DG delivered a 3.51% return in the past 3 months.
The top 10 stocks among hedge funds returned 231.2% between 2015 and 2020, and outperformed the S&P 500 Index ETFs by more than 126 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Here you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.
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Disclosure: None. This article is originally published at Insider Monkey.
