Confluence Investment Management recently released its Q1 2020 Investor Letter, a copy of which you can download below. The All Cap Value Fund posted a return of -22.4% for the quarter (net of fees), outperforming its benchmark, the Russell 3000 Value Index which returned -27.3% in the same quarter. You should check out Confluence Investment Management’s top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash. There weren’t a lot of funds who could deliver these kinds of returns without shorting the market or using aggressive put options.
In the said letter, Confluence Investment Management highlighted a few stocks and Dollar Tree Inc. (NASDAQ:DLTR) is one of them. Dollar Tree is a leading operator of discount variety stores. Year-to-date, Dollar Tree Inc. (NASDAQ:DLTR) stock lost 13.1% and on May 22nd it had a closing price of $81.70. Here is what Confluence Investment Management said:
"Dollar Tree, Inc. operates under two retail banners: Dollar Tree and Family Dollar. The Dollar Tree segment, the last true dollar store with a national footprint, has been well run for many years with positive same-store sales every quarter since 2007. The concept has wide demographic appeal and a treasure hunt element around seasonal merchandise allows the company to operate with industry-leading margins. We’ve admired Dollar Tree for several years but were skeptical of the company’s 2015 acquisition of Family Dollar, a fundamentally different concept with lower margins and a relatively narrow core demographic. Management has worked to improve the operations of Family Dollar over the last several years including remodeling stores, closing or re-bannering hundreds of underperforming stores, improving sourcing capabilities, and revamping its private label offering. It’s been a slow and daunting task given the large store base, but after years of heavy investment enough of the Family Dollar footprint has been repositioned or closed that a more stable business should emerge over the next 18 months.
Dollar Tree shares were trading at roughly the same level they did when the company acquired Family Dollar, despite having grown the Dollar Tree portion’s operating income by 40% and reducing the debt burden associated with the Family Dollar acquisition by half. The debt reduction efforts were key to our investment decision as we believe the company now has more financial flexibility and is likely to start returning cash flow to shareholders in the coming quarters. Lastly, the company was faced with several transitory headwinds last year including tariffs, high freight costs, the consolidation of its buying teams, and a helium shortage affecting its party supply business. Although we anticipate some residual impact from tariffs, these headwinds are expected to dissipate. Dollar Tree will face many new challenges during the pandemic and its aftermath, but it is likely to be relatively well positioned given that many stores remain open and due to its inherently countercyclical attributes."
In Q4 2019, the number of bullish hedge fund positions on Dollar Tree Inc. (NASDAQ:DLTR) stock decreased by about 2% from the previous quarter (see the chart here), so a number of other hedge fund managers don't seem to agree with DLTR’s growth potential. Our calculations showed that Dollar Tree Inc. (NASDAQ:DLTR) isn't among the 30 most popular stocks among hedge funds.
The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 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. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.
Video: Top 5 Stocks Among Hedge Funds
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we asked astrophysicist Neil deGrasse Tyson about Tesla, Elon Musk, and his top stock picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. You can subscribe to our free enewsletter below to receive our stories in your inbox:
Disclosure: None. This article is originally published at Insider Monkey.