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Hedge Fund Consensus Stocks vs. Dollar General Corp. (DG) In 2019

Abigail Fisher

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 57% each. Hedge funds' top 3 stock picks returned 44.6% this year and beat the S&P 500 ETFs by nearly 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 Dollar General Corp. (NYSE:DG).

Dollar General Corp. (NYSE:DG) has experienced an increase in enthusiasm from smart money of late. Our calculations also showed that DG isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

[caption id="attachment_338182" align="aligncenter" width="500"] Harold Levy of Iridian Asset Management[/caption]

Harold Levy Iridian Asset Management

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. With all of this in mind let's go over the key hedge fund action regarding Dollar General Corp. (NYSE:DG).

How are hedge funds trading Dollar General Corp. (NYSE:DG)?

Heading into the fourth quarter of 2019, a total of 45 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 22% from one quarter earlier. By comparison, 31 hedge funds held shares or bullish call options in DG a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Orbis Investment Management, managed by William B. Gray, holds the largest position in Dollar General Corp. (NYSE:DG). Orbis Investment Management has a $377 million position in the stock, comprising 2.8% of its 13F portfolio. Coming in second is John Overdeck and David Siegel of Two Sigma Advisors, with a $269.1 million position; 0.7% of its 13F portfolio is allocated to the stock. Other peers that are bullish encompass Ken Griffin's Citadel Investment Group, Renaissance Technologies and Steve Cohen's Point72 Asset Management. In terms of the portfolio weights assigned to each position 12th Street Asset Management allocated the biggest weight to Dollar General Corp. (NYSE:DG), around 8.17% of its 13F portfolio. Emerson Point Capital is also relatively very bullish on the stock, setting aside 7.79 percent of its 13F equity portfolio to DG.

Now, specific money managers have jumped into Dollar General Corp. (NYSE:DG) headfirst. Melvin Capital Management, managed by Gabriel Plotkin, assembled the biggest position in Dollar General Corp. (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 made a $58.3 million investment in the stock 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 now take a look at hedge fund activity in other stocks similar to Dollar General Corp. (NYSE:DG). These stocks are SYSCO Corporation (NYSE:SYY), ING Groep N.V. (NYSE:ING), Activision Blizzard, Inc. (NASDAQ:ATVI), and Sempra Energy (NYSE:SRE). All of these stocks' market caps are similar 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 Corp. (NYSE:DG) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on DG as the stock returned 44.9% in 2019 (through December 23rd) and outperformed the market. Hedge funds were rewarded for their relative bullishness. 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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