What Does Hedge Fund Sentiment Say About Dollar Tree, Inc. (DLTR)?

Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Micron and Anadarko Petroleum, have not done well during the last 12 months ending in October due to various reasons. Nevertheless, the data show elite investors’ consensus picks have done well on average. The top 30 S&P 500 stocks among hedge funds at the end of September 2014 yielded an average return of 9.5% during the last four quarters ending in October and sixty three percent of these 30 stocks outperformed the market. S&P 500 Index returned only 5.2% during the same period and less than 49% of its constituents managed to beat this return. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at Dollar Tree, Inc. (NASDAQ:DLTR) from the perspective of those elite funds.

Dollar Tree, Inc. (NASDAQ:DLTR) shareholders have witnessed a decrease in hedge fund sentiment of late. At the end of this article we will also compare DLTR to other stocks, including DaVita HealthCare Partners Inc (NYSE:DVA), Equinix Inc (NASDAQ:EQIX), and Level 3 Communications, Inc. (NYSE:LVLT) to get a better sense of its popularity.

According to most traders, hedge funds are assumed to be worthless, outdated investment vehicles of years past. While there are greater than 8000 funds with their doors open at present, Our experts look at the elite of this club, about 700 funds. These investment experts direct the majority of the hedge fund industry’s total capital, and by paying attention to their inimitable stock picks, Insider Monkey has brought to light many investment strategies that have historically outpaced the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy outperformed the S&P 500 index by 12 percentage points annually for a decade in their back tests.

Now, we’re going to take a look at the recent action regarding Dollar Tree, Inc. (NASDAQ:DLTR).

How are hedge funds trading Dollar Tree, Inc. (NASDAQ:DLTR)?

Heading into Q4, a total of 52 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the second quarter. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Stephen Mandel’s Lone Pine Capital has the most valuable position in Dollar Tree, Inc. (NASDAQ:DLTR), worth close to $342.6 million, amounting to 1.4% of its total 13F portfolio. Sitting at the No. 2 spot is Adage Capital Management, managed by Phill Gross and Robert Atchinson, which holds a $326.6 million position; the fund has 0.9% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism comprise Charles Akre’s Akre Capital Management, Peter Adam Hochfelder’s Brahman Capital and Panayotis Takis Sparaggis’s Alkeon Capital Management.

Since Dollar Tree, Inc. (NASDAQ:DLTR) has faced falling interest from hedge fund managers, logic holds that there exists a select few money managers that slashed their full holdings in the third quarter. Intriguingly, James Crichton’s Hitchwood Capital Management dumped the biggest investment of the 700 funds monitored by Insider Monkey, totaling close to $94.8 million in stock. Neil Chriss’s fund, Hutchin Hill Capital, also cut its holding, about $43.4 million worth. These transactions are interesting, as total hedge fund interest was reduced by 8 funds in the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Dollar Tree, Inc. (NASDAQ:DLTR) but similarly valued. We will take a look at DaVita HealthCare Partners Inc (NYSE:DVA), Equinix Inc (NASDAQ:EQIX), Level 3 Communications, Inc. (NYSE:LVLT), and Telefonica Brasil SA (ADR) (NYSE:VIV). This group of stocks’ market values resemble DLTR’s market value.

As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $2.84 billion. Equinix Inc (NASDAQ:EQIX) is the most popular stock in this table with 42 funds reporting long positions, while Telefonica Brasil SA (ADR) (NYSE:VIV) is the least popular one. On the other hand, On the other hand, hedge funds held in aggregate $3.27 billion of DLTR’s stock and it is also more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.