We are still in an overall bull market and many stocks that smart money investors were piling into surged through November 22nd. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 52% and 49% respectively. Hedge funds' top 3 stock picks returned 39.1% this year and beat the S&P 500 ETFs by nearly 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Dollar General Corporation (NYSE:DG).
Is Dollar General Corporation (NYSE:DG) a buy, sell, or hold? Money managers are betting on the stock. The number of bullish hedge fund bets inched up by 8 in recent months. Our calculations also showed that DG isn't among the 30 most popular stocks among hedge funds.
In the eyes of most stock holders, hedge funds are viewed as slow, old investment vehicles of years past. While there are more than 8000 funds trading at the moment, We look at the top tier of this group, approximately 750 funds. These hedge fund managers direct most of the smart money's total capital, and by observing their finest equity investments, Insider Monkey has formulated several investment strategies that have historically defeated the S&P 500 index. Insider Monkey's flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points per annum since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_25717" align="aligncenter" width="440"] Steven Cohen of Point72 Asset Management[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to go over the fresh hedge fund action regarding Dollar General Corporation (NYSE:DG).
How are hedge funds trading Dollar General Corporation (NYSE:DG)?
At Q3's end, a total of 45 of the hedge funds tracked by Insider Monkey were long this stock, a change of 22% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in DG over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Dollar General Corporation (NYSE:DG) was held by Orbis Investment Management, which reported holding $377 million worth of stock at the end of September. It was followed by Two Sigma Advisors with a $269.1 million position. Other investors bullish on the company included Citadel Investment Group, Renaissance Technologies, and Point72 Asset Management. In terms of the portfolio weights assigned to each position 12th Street Asset Management allocated the biggest weight to Dollar General Corporation (NYSE:DG), around 8.17% of its portfolio. Emerson Point Capital is also relatively very bullish on the stock, dishing out 7.79 percent of its 13F equity portfolio to DG.
With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Melvin Capital Management, managed by Gabriel Plotkin, created the largest position in Dollar General Corporation (NYSE:DG). Melvin Capital Management had $139.1 million invested in the company at the end of the quarter. David Cohen and Harold Levy's Iridian Asset Management also initiated a $58.3 million position during the quarter. The following funds were also among the new DG investors: Amir Mokari's Emerson Point Capital, David Costen Haley's HBK Investments, and Joseph Samuels's Islet Management.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Dollar General Corporation (NYSE:DG) but similarly valued. These stocks are SYSCO Corporation (NYSE:SYY), ING Groep N.V. (NYSE:ING), Activision Blizzard, Inc. (NASDAQ:ATVI), and Sempra Energy (NYSE:SRE). This group of stocks' market caps are closest to DG's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SYY,22,3016032,-9 ING,9,542281,1 ATVI,70,3014968,24 SRE,28,1270412,3 Average,32.25,1960923,4.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.25 hedge funds with bullish positions and the average amount invested in these stocks was $1961 million. That figure was $2157 million in DG's case. Activision Blizzard, Inc. (NASDAQ:ATVI) is the most popular stock in this table. On the other hand ING Groep N.V. (NYSE:ING) is the least popular one with only 9 bullish hedge fund positions. Dollar General Corporation (NYSE:DG) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately DG wasn't nearly as popular as these 20 stocks and hedge funds that were betting on DG were disappointed as the stock returned 0.7% during the fourth quarter (through 11/22) and underperformed 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.