Were Hedge Funds Right About Dollar General Corp. (DG)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the third quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 6 years and analyze what the smart money thinks of Dollar General Corp. (NYSE:DG) based on that data and determine whether they were really smart about the stock.

Dollar General Corp. (NYSE:DG) investors should pay attention to an increase in hedge fund interest lately. Dollar General Corp. (NYSE:DG) was in 46 hedge funds’ portfolios at the end of September. 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 Q3 rankings).

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. Keeping this in mind let’s check out the fresh hedge fund action regarding Dollar General Corp. (NYSE:DG).

Tom Gayner of Markel Gayner Asset Management

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

At Q3’s end, a total of 46 of the hedge funds tracked by Insider Monkey were long this stock, a change of 2% from the previous quarter. The graph below displays the number of hedge funds with bullish position in DG over the last 25 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, BlueSpruce Investments was the largest shareholder of Dollar General Corp. (NYSE:DG), with a stake worth $655.2 million reported as of the end of September. Trailing BlueSpruce Investments was Orbis Investment Management, which amassed a stake valued at $271.1 million. Arrowstreet Capital, Alkeon Capital Management, and Bridgewater Associates 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 11.41% of its 13F portfolio. Lionstone Capital Management is also relatively very bullish on the stock, setting aside 7.67 percent of its 13F equity portfolio to DG.

Now, some big names have jumped into Dollar General Corp. (NYSE:DG) headfirst. Senator Investment Group, managed by Doug Silverman and Alexander Klabin, created the most outsized position in Dollar General Corp. (NYSE:DG). Senator Investment Group had $74.2 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also initiated a $13 million position during the quarter. The following funds were also among the new DG investors: Roberto Mignone’s Bridger Management, Tom Gayner’s Markel Gayner Asset Management, and David Costen Haley’s HBK Investments.

Let’s now take a look at hedge fund activity in other stocks similar to Dollar General Corp. (NYSE:DG). We will take a look at Banco Santander (Brasil) SA (NYSE:BSBR), Johnson Controls International plc (NYSE:JCI), Keurig Dr Pepper Inc. (NASDAQ:KDP), Coupang, Inc. (NYSE:CPNG), Wireless Telecom Group, Inc. (NYSE:WIT), Marriott International Inc (NYSE:MAR), and Twitter Inc (NYSE:TWTR). This group of stocks’ market caps are closest to DG’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 39.9 hedge funds with bullish positions and the average amount invested in these stocks was $3207 million. That figure was $1906 million in DG’s case. Twitter Inc (NYSE:TWTR) is the most popular stock in this table. On the other hand Banco Santander (Brasil) SA (NYSE:BSBR) 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 48.7. 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 29.6% in 2021 and beat the market again by 3.6 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 -1.4% since the end of September (through 1/31) 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 all of these stocks already outperformed the market since 2019.

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