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How Did Dollar Tree, Inc. (DLTR) Perform In Comparison to Hedge Fund Favorites in 2019?

Debasis Saha
Is DLTR A Good Stock To Buy?

We are still in an overall bull market and many stocks that smart money investors were piling into surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained more than 57% each. Hedge funds' top 3 stock picks returned 44.6% this year and beat the S&P 500 ETFs by almost 14 percentage points. That's a big deal. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Hedge fund interest in Dollar Tree, Inc. (NASDAQ:DLTR) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare DLTR to other stocks including T. Rowe Price Group, Inc. (NASDAQ:TROW), IHS Markit Ltd. (NASDAQ:INFO), and Hilton Worldwide Holdings Inc (NYSE:HLT) to get a better sense of its popularity.

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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_26073" align="alignnone" width="600"] Jim Simons of Renaissance Technologies[/caption]

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We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind we're going to analyze the new hedge fund action surrounding Dollar Tree, Inc. (NASDAQ:DLTR).

What does smart money think about Dollar Tree, Inc. (NASDAQ:DLTR)?

At Q3's end, a total of 49 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. By comparison, 53 hedge funds held shares or bullish call options in DLTR a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Is DLTR A Good Stock To Buy?

The largest stake in Dollar Tree, Inc. (NASDAQ:DLTR) was held by Akre Capital Management, which reported holding $580.6 million worth of stock at the end of September. It was followed by Rivulet Capital with a $163.8 million position. Other investors bullish on the company included Renaissance Technologies, Millennium Management, and D E Shaw. In terms of the portfolio weights assigned to each position Rivulet Capital allocated the biggest weight to Dollar Tree, Inc. (NASDAQ:DLTR), around 18.58% of its 13F portfolio. Sunriver Management is also relatively very bullish on the stock, earmarking 6.94 percent of its 13F equity portfolio to DLTR.

Because Dollar Tree, Inc. (NASDAQ:DLTR) has experienced falling interest from the smart money, logic holds that there lies a certain "tier" of fund managers who were dropping their entire stakes by the end of the third quarter. At the top of the heap, Jeffrey Smith's Starboard Value LP dropped the largest investment of all the hedgies followed by Insider Monkey, totaling about $59.7 million in stock, and Oscar Hattink's BlueDrive Global Investors was right behind this move, as the fund dropped about $27.5 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's check out hedge fund activity in other stocks similar to Dollar Tree, Inc. (NASDAQ:DLTR). These stocks are T. Rowe Price Group, Inc. (NASDAQ:TROW), IHS Markit Ltd. (NASDAQ:INFO), Hilton Worldwide Holdings Inc (NYSE:HLT), and Sun Life Financial Inc. (NYSE:SLF). This group of stocks' market caps resemble DLTR's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TROW,23,209393,-7 INFO,30,859361,2 HLT,48,3928940,4 SLF,12,259612,1 Average,28.25,1314327,0 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $1314 million. That figure was $1912 million in DLTR's case. Hilton Worldwide Holdings Inc (NYSE:HLT) is the most popular stock in this table. On the other hand Sun Life Financial Inc. (NYSE:SLF) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Dollar Tree, Inc. (NASDAQ:DLTR) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately DLTR wasn't nearly as popular as these 20 stocks and hedge funds that were betting on DLTR were disappointed as the stock returned 2.3% so far in 2019 (through 12/23) and trailed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 65 percent of these stocks already outperformed the market in 2019. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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