World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients' money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It's not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It's also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.
Is Dollar General Corporation (NYSE:DG) the right pick for your portfolio? Investors who are in the know are taking an optimistic view. The number of bullish hedge fund bets inched up by 6 lately. Our calculations also showed that DG isn't among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's analyze the recent hedge fund action regarding Dollar General Corporation (NYSE:DG).
Hedge fund activity in Dollar General Corporation (NYSE:DG)
At the end of the second quarter, a total of 37 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 19% from the previous quarter. The graph below displays the number of hedge funds with bullish position in DG over the last 16 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Orbis Investment Management held the most valuable stake in Dollar General Corporation (NYSE:DG), which was worth $417.1 million at the end of the second quarter. On the second spot was Two Sigma Advisors which amassed $261.3 million worth of shares. Moreover, Renaissance Technologies, Arrowstreet Capital, and Millennium Management were also bullish on Dollar General Corporation (NYSE:DG), allocating a large percentage of their portfolios to this stock.
As aggregate interest increased, specific money managers have jumped into Dollar General Corporation (NYSE:DG) headfirst. Millennium Management, managed by Israel Englander, initiated the biggest position in Dollar General Corporation (NYSE:DG). Millennium Management had $84.2 million invested in the company at the end of the quarter. Phill Gross and Robert Atchinson's Adage Capital Management also initiated a $30.3 million position during the quarter. The other funds with new positions in the stock are Brandon Haley's Holocene Advisors, Jeffrey Talpins's Element Capital Management, and Steve Cohen's Point72 Asset Management.
Let's now review hedge fund activity in other stocks similar to Dollar General Corporation (NYSE:DG). These stocks are Canadian Imperial Bank of Commerce (NYSE:CM), Monster Beverage Corporation (NASDAQ:MNST), Humana Inc (NYSE:HUM), and eBay Inc (NASDAQ:EBAY). This group of stocks' market valuations resemble DG's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CM,12,210856,-3 MNST,38,2929071,5 HUM,62,4261860,20 EBAY,47,3898481,-1 Average,39.75,2825067,5.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 39.75 hedge funds with bullish positions and the average amount invested in these stocks was $2825 million. That figure was $1378 million in DG's case. Humana Inc (NYSE:HUM) is the most popular stock in this table. On the other hand Canadian Imperial Bank of Commerce (NYSE:CM) is the least popular one with only 12 bullish hedge fund positions. Dollar General Corporation (NYSE:DG) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks (see the video below) among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on DG as the stock returned 17.9% during the same time frame and outperformed the market by an even larger margin. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.