We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 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 Grocery Outlet Holding Corp. (NASDAQ:GO).
Grocery Outlet Holding Corp. (NASDAQ:GO) investors should pay attention to a decrease in enthusiasm from smart money of late. Our calculations also showed that GO isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to 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 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_258236" align="alignnone" width="600"] Ken Griffin of Citadel Investment Group[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds' buy/sell signals. Let's view the new hedge fund action surrounding Grocery Outlet Holding Corp. (NASDAQ:GO).
How are hedge funds trading Grocery Outlet Holding Corp. (NASDAQ:GO)?
Heading into the fourth quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -29% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards GO over the last 17 quarters. With hedgies' sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
The largest stake in Grocery Outlet Holding Corp. (NASDAQ:GO) was held by Citadel Investment Group, which reported holding $20.6 million worth of stock at the end of September. It was followed by Adage Capital Management with a $8.8 million position. Other investors bullish on the company included Atika Capital, Park Presidio Capital, and Third Point. In terms of the portfolio weights assigned to each position Atika Capital allocated the biggest weight to Grocery Outlet Holding Corp. (NASDAQ:GO), around 1.54% of its 13F portfolio. Park Presidio Capital is also relatively very bullish on the stock, designating 0.82 percent of its 13F equity portfolio to GO.
Since Grocery Outlet Holding Corp. (NASDAQ:GO) has experienced declining sentiment from the entirety of the hedge funds we track, we can see that there is a sect of money managers that slashed their positions entirely heading into Q4. Intriguingly, Bob Peck and Andy Raab's FPR Partners cut the largest stake of all the hedgies followed by Insider Monkey, valued at about $32.9 million in stock. Jeffrey Talpins's fund, Element Capital Management, also sold off its stock, about $4.9 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 6 funds heading into Q4.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Grocery Outlet Holding Corp. (NASDAQ:GO) but similarly valued. These stocks are Mirati Therapeutics, Inc. (NASDAQ:MRTX), Atlantic Union Bankshares Corporation (NASDAQ:AUB), NuStar Energy L.P. (NYSE:NS), and SiteOne Landscape Supply, Inc. (NYSE:SITE). This group of stocks' market caps are similar to GO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MRTX,33,1154565,6 AUB,3,19925,0 NS,2,1883,0 SITE,13,53748,1 Average,12.75,307530,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $308 million. That figure was $63 million in GO's case. Mirati Therapeutics, Inc. (NASDAQ:MRTX) is the most popular stock in this table. On the other hand NuStar Energy L.P. (NYSE:NS) is the least popular one with only 2 bullish hedge fund positions. Grocery Outlet Holding Corp. (NASDAQ:GO) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately GO wasn't nearly as popular as these 20 stocks and hedge funds that were betting on GO were disappointed as the stock returned -4.5% during the fourth quarter (through the end of November) 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.