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Is Darden Restaurants, Inc. (DRI) Going to Burn These Hedge Funds?

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A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended June 30th, so let’s proceed with the discussion of the hedge fund sentiment on Darden Restaurants, Inc. (NYSE:DRI).

Is Darden Restaurants, Inc. (NYSE:DRI) going to take off soon? Hedge funds were getting less optimistic. The number of bullish hedge fund positions were trimmed by 5 lately. Darden Restaurants, Inc. (NYSE:DRI) was in 44 hedge funds' portfolios at the end of June. The all time high for this statistic is 52. Our calculations also showed that DRI isn't among the 30 most popular stocks among hedge funds (click for Q2 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 79 percentage points since March 2017 (see the details here). That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Matthew Hulsizer PEAK6 Capital
Matthew Hulsizer PEAK6 Capital

Matthew Hulsizer of PEAK6 Capital

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. Keeping this in mind we're going to take a glance at the key hedge fund action encompassing Darden Restaurants, Inc. (NYSE:DRI).

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

At second quarter's end, a total of 44 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the previous quarter. By comparison, 49 hedge funds held shares or bullish call options in DRI a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is DRI A Good Stock To Buy?
Is DRI A Good Stock To Buy?

Among these funds, Steadfast Capital Management held the most valuable stake in Darden Restaurants, Inc. (NYSE:DRI), which was worth $223.5 million at the end of the second quarter. On the second spot was Steadfast Capital Management which amassed $157.9 million worth of shares. Melvin Capital Management, Millennium Management, and GLG Partners 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 DG Capital Management allocated the biggest weight to Darden Restaurants, Inc. (NYSE:DRI), around 2.5% of its 13F portfolio. Sustainable Insight Capital Management is also relatively very bullish on the stock, setting aside 2.46 percent of its 13F equity portfolio to DRI.

Due to the fact that Darden Restaurants, Inc. (NYSE:DRI) has faced bearish sentiment from the smart money, logic holds that there lies a certain "tier" of money managers who sold off their full holdings last quarter. Interestingly, Jack Woodruff's Candlestick Capital Management said goodbye to the biggest stake of the "upper crust" of funds tracked by Insider Monkey, valued at about $45.8 million in stock, and Doug Silverman and Alexander Klabin's Senator Investment Group was right behind this move, as the fund dumped about $24.9 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 5 funds last quarter.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Darden Restaurants, Inc. (NYSE:DRI) but similarly valued. We will take a look at Smith & Nephew plc (NYSE:SNN), Hewlett Packard Enterprise Company (NYSE:HPE), Akamai Technologies, Inc. (NASDAQ:AKAM), Ulta Beauty, Inc. (NASDAQ:ULTA), HEICO Corporation (NYSE:HEI), Insulet Corporation (NASDAQ:PODD), and Cincinnati Financial Corporation (NASDAQ:CINF). This group of stocks' market caps resemble DRI's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SNN,13,119901,2 HPE,34,1015096,7 AKAM,30,273261,5 ULTA,40,1213090,-6 HEI,41,644494,-4 PODD,38,1447274,-1 CINF,22,780728,0 Average,31.1,784835,0.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.1 hedge funds with bullish positions and the average amount invested in these stocks was $785 million. That figure was $890 million in DRI's case. HEICO Corporation (NYSE:HEI) is the most popular stock in this table. On the other hand Smith & Nephew plc (NYSE:SNN) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Darden Restaurants, Inc. (NYSE:DRI) is more popular among hedge funds. Our overall hedge fund sentiment score for DRI is 75.4. 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. 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 returned 22.9% in 2021 through October 1st but still managed to beat the market by 5.6 percentage points. Hedge funds were also right about betting on DRI as the stock returned 7.6% since the end of June (through 10/1) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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