In this article we are going to use hedge fund sentiment as a tool and determine whether Dollar General Corp. (NYSE:DG) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is DG stock a buy or sell? Dollar General Corp. (NYSE:DG) investors should pay attention to an increase in enthusiasm from smart money of late. Dollar General Corp. (NYSE:DG) was in 57 hedge funds’ portfolios at the end of December. The all time high for this statistic is 67. There were 56 hedge funds in our database with DG positions at the end of the third quarter. Our calculations also showed that DG isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 124 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Aaron Cowen of Suvretta Capital Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. Recently Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 best biotech stocks to invest in to pick the next stock 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 (or at the end of this article). Keeping this in mind let’s view the new hedge fund action regarding Dollar General Corp. (NYSE:DG).
Do Hedge Funds Think DG Is A Good Stock To Buy Now?
Heading into the first quarter of 2021, a total of 57 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 2% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in DG over the last 22 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Tim Hurd and Ed Magnus’s BlueSpruce Investments has the most valuable position in Dollar General Corp. (NYSE:DG), worth close to $503.4 million, accounting for 9.9% of its total 13F portfolio. The second largest stake is held by Suvretta Capital Management, led by Aaron Cowen, holding a $189.5 million position; 2.7% of its 13F portfolio is allocated to the company. Some other professional money managers that hold long positions consist of Cliff Asness’s AQR Capital Management, Brandon Haley’s Holocene Advisors and Panayotis Takis Sparaggis’s Alkeon Capital Management. In terms of the portfolio weights assigned to each position BlueSpruce Investments allocated the biggest weight to Dollar General Corp. (NYSE:DG), around 9.92% of its 13F portfolio. 12th Street Asset Management is also relatively very bullish on the stock, designating 7.56 percent of its 13F equity portfolio to DG.
Consequently, specific money managers were breaking ground themselves. Balyasny Asset Management, managed by Dmitry Balyasny, created the most valuable position in Dollar General Corp. (NYSE:DG). Balyasny Asset Management had $43.8 million invested in the company at the end of the quarter. Leon Lowenstein’s Lionstone Capital Management also initiated a $14.2 million position during the quarter. The following funds were also among the new DG investors: The Motley Fool’s 1623 Capital, Kenneth Tropin’s Graham Capital Management, and Lee Ainslie’s Maverick Capital.
Let’s now review hedge fund activity in other stocks similar to Dollar General Corp. (NYSE:DG). We will take a look at ICICI Bank Limited (NYSE:IBN), Boston Scientific Corporation (NYSE:BSX), Northrop Grumman Corporation (NYSE:NOC), UBS Group AG (NYSE:UBS), Southern Copper Corporation (NYSE:SCCO), Waste Management, Inc. (NYSE:WM), and Koninklijke Philips NV (NYSE:PHG). All of these stocks’ market caps are closest to DG’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IBN | 29 | 1080794 | 5 |
| BSX | 58 | 3632909 | -3 |
| NOC | 40 | 1507811 | -2 |
| UBS | 18 | 184346 | 1 |
| SCCO | 23 | 572140 | -4 |
| WM | 37 | 2937888 | -1 |
| PHG | 8 | 53896 | -2 |
| Average | 30.4 | 1424255 | -0.9 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.4 hedge funds with bullish positions and the average amount invested in these stocks was $1424 million. That figure was $1677 million in DG’s case. Boston Scientific Corporation (NYSE:BSX) is the most popular stock in this table. On the other hand Koninklijke Philips NV (NYSE:PHG) is the least popular one with only 8 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 80.5. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 5.3% in 2021 through March 19th and beat the market again by 0.8 percentage points. Unfortunately DG wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on DG were disappointed as the stock returned -10.6% since the end of December (through 3/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
Follow Dollar General Corp (NYSE:DG)
Follow Dollar General Corp (NYSE:DG)
Disclosure: None. This article was originally published at Insider Monkey.
