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Is DLTR A Good Stock To Buy Now?

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Debasis Saha
·6 min read
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Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 817 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Dollar Tree, Inc. (NASDAQ:DLTR).

Is DLTR a good stock to buy now? Dollar Tree, Inc. (NASDAQ:DLTR) has experienced a decrease in enthusiasm from smart money of late. Dollar Tree, Inc. (NASDAQ:DLTR) was in 50 hedge funds' portfolios at the end of September. The all time high for this statistics is 65. There were 60 hedge funds in our database with DLTR positions at the end of the second quarter. Our calculations also showed that DLTR isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Charles Akre of Akre Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. 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 website. Keeping this in mind let's take a peek at the latest hedge fund action surrounding Dollar Tree, Inc. (NASDAQ:DLTR).

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

At Q3's end, a total of 50 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in DLTR over the last 21 quarters. With the smart money's sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

Is DLTR A Good Stock To Buy?
Is DLTR A Good Stock To Buy?

More specifically, Akre Capital Management was the largest shareholder of Dollar Tree, Inc. (NASDAQ:DLTR), with a stake worth $413.6 million reported as of the end of September. Trailing Akre Capital Management was Rivulet Capital, which amassed a stake valued at $277.8 million. Kensico Capital, Maverick Capital, and Two Sigma Advisors 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 Rivulet Capital allocated the biggest weight to Dollar Tree, Inc. (NASDAQ:DLTR), around 15.13% of its 13F portfolio. BlueDrive Global Investors is also relatively very bullish on the stock, setting aside 8.27 percent of its 13F equity portfolio to DLTR.

Since Dollar Tree, Inc. (NASDAQ:DLTR) has experienced a decline in interest from the aggregate hedge fund industry, we can see that there is a sect of funds who sold off their positions entirely heading into Q4. Interestingly, Andrew Immerman and Jeremy Schiffman's Palestra Capital Management dropped the largest investment of all the hedgies watched by Insider Monkey, valued at about $180.6 million in stock, and Ryan Frick and Oliver Evans's Dorsal Capital Management was right behind this move, as the fund dropped about $69.5 million worth. These transactions are interesting, as total hedge fund interest fell by 10 funds heading into Q4.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Dollar Tree, Inc. (NASDAQ:DLTR) but similarly valued. These stocks are Tyson Foods, Inc. (NYSE:TSN), Schlumberger Limited. (NYSE:SLB), Corteva, Inc. (NYSE:CTVA), GSX Techedu Inc. (NYSE:GSX), Weyerhaeuser Co. (NYSE:WY), Old Dominion Freight Line (NASDAQ:ODFL), and TD Ameritrade Holding Corp. (NYSE:AMTD). This group of stocks' market valuations are similar to DLTR's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TSN,36,618426,-1 SLB,53,1030051,0 CTVA,36,1058371,-3 GSX,18,387317,5 WY,41,476768,8 ODFL,47,787838,12 AMTD,37,1261757,-10 Average,38.3,802933,1.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.3 hedge funds with bullish positions and the average amount invested in these stocks was $803 million. That figure was $1913 million in DLTR's case. Schlumberger Limited. (NYSE:SLB) is the most popular stock in this table. On the other hand GSX Techedu Inc. (NYSE:GSX) is the least popular one with only 18 bullish hedge fund positions. Dollar Tree, Inc. (NASDAQ:DLTR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DLTR is 63.8. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd and still beat the market by 16 percentage points. Hedge funds were also right about betting on DLTR as the stock returned 22.2% since the end of Q3 (through 12/2) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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