Were Hedge Funds Right About The Home Depot, Inc. (HD)?

In this article we will take a look at whether hedge funds think The Home Depot, Inc. (NYSE:HD) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is The Home Depot, Inc. (NYSE:HD) a bargain? The best stock pickers were getting less bullish. The number of bullish hedge fund positions were trimmed by 11 in recent months. The Home Depot, Inc. (NYSE:HD) was in 68 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 91. Our calculations also showed that HD isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Tom Gayner of Markel Gayner Asset Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. 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. 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. With all of this in mind let’s take a glance at the new hedge fund action surrounding The Home Depot, Inc. (NYSE:HD).

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

Heading into the second quarter of 2021, a total of 68 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the fourth quarter of 2020. Below, you can check out the change in hedge fund sentiment towards HD over the last 23 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Ken Fisher’s Fisher Asset Management has the biggest position in The Home Depot, Inc. (NYSE:HD), worth close to $2.1469 billion, comprising 1.5% of its total 13F portfolio. Sitting at the No. 2 spot is Citadel Investment Group, led by Ken Griffin, holding a $602.4 million call position; 0.2% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that hold long positions encompass Cliff Asness’s AQR Capital Management, Phill Gross and Robert Atchinson’s Adage Capital Management and Tom Gayner’s Markel Gayner Asset Management. In terms of the portfolio weights assigned to each position White Square Capital allocated the biggest weight to The Home Depot, Inc. (NYSE:HD), around 8.12% of its 13F portfolio. Pittencrieff Partners – Gabalex Capital is also relatively very bullish on the stock, setting aside 7.32 percent of its 13F equity portfolio to HD.

Since The Home Depot, Inc. (NYSE:HD) has witnessed declining sentiment from hedge fund managers, it’s safe to say that there were a few hedge funds who sold off their positions entirely heading into Q2. At the top of the heap, Dmitry Balyasny’s Balyasny Asset Management said goodbye to the biggest position of the “upper crust” of funds tracked by Insider Monkey, worth an estimated $54.7 million in stock. Michael Kharitonov and Jon David McAuliffe’s fund, Voleon Capital, also sold off its stock, about $37.7 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 11 funds heading into Q2.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as The Home Depot, Inc. (NYSE:HD) but similarly valued. We will take a look at Paypal Holdings Inc (NASDAQ:PYPL), Intel Corporation (NASDAQ:INTC), ASML Holding N.V. (NASDAQ:ASML), Comcast Corporation (NASDAQ:CMCSA), Verizon Communications Inc. (NYSE:VZ), Exxon Mobil Corporation (NYSE:XOM), and Netflix, Inc. (NASDAQ:NFLX). All of these stocks’ market caps are similar to HD’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 84.7 hedge funds with bullish positions and the average amount invested in these stocks was $9177 million. That figure was $4360 million in HD’s case. Paypal Holdings Inc (NASDAQ:PYPL) is the most popular stock in this table. On the other hand ASML Holding N.V. (NASDAQ:ASML) is the least popular one with only 35 bullish hedge fund positions. The Home Depot, Inc. (NYSE:HD) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for HD is 31.7. 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 negative signal and 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 25.8% in 2021 through August 6th and surpassed the market again by 6.7 percentage points. Unfortunately HD wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); HD investors were disappointed as the stock returned 8.6% since the end of March (through 8/6) 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 most of these stocks already outperformed the market in 2021.

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

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