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Hedge Funds Aren’t Crazy About Dollar General Corp. (DG)

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After several tireless days we have finished crunching the numbers from nearly 900 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms' equity portfolios as of June 30th. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Dollar General Corp. (NYSE:DG).

Dollar General Corp. (NYSE:DG) has seen a decrease in support from the world's most elite money managers lately. Dollar General Corp. (NYSE:DG) was in 45 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 67. Our calculations also showed that DG isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 79 percentage points since March 2017 (see the details here). That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.


Cliff Asness of AQR Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind we're going to check out the recent hedge fund action surrounding Dollar General Corp. (NYSE:DG).

Do Hedge Funds Think DG Is A Good Stock To Buy Now?

At the end of June, a total of 45 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the previous quarter. By comparison, 67 hedge funds held shares or bullish call options in DG a year ago. With hedgies' sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

Is DG A Good Stock To Buy?
Is DG A Good Stock To Buy?

Among these funds, BlueSpruce Investments held the most valuable stake in Dollar General Corp. (NYSE:DG), which was worth $625.7 million at the end of the second quarter. On the second spot was Arrowstreet Capital which amassed $142.1 million worth of shares. Citadel Investment Group, Alkeon Capital Management, and AQR Capital Management 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 BlueSpruce Investments allocated the biggest weight to Dollar General Corp. (NYSE:DG), around 11.41% of its 13F portfolio. Lionstone Capital Management is also relatively very bullish on the stock, dishing out 7.29 percent of its 13F equity portfolio to DG.

Seeing as Dollar General Corp. (NYSE:DG) has witnessed bearish sentiment from hedge fund managers, it's safe to say that there exists a select few funds that elected to cut their entire stakes by the end of the second quarter. At the top of the heap, Aaron Cowen's Suvretta Capital Management cut the largest investment of the "upper crust" of funds followed by Insider Monkey, worth close to $212.1 million in stock, and Steve Cohen's Point72 Asset Management was right behind this move, as the fund sold off about $98.9 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 7 funds by the end of the second quarter.

Let's also examine hedge fund activity in other stocks similar to Dollar General Corp. (NYSE:DG). These stocks are Ferrari N.V. (NYSE:RACE), Newmont Corporation (NYSE:NEM), Pinterest, Inc. (NYSE:PINS), Keurig Dr Pepper Inc. (NASDAQ:KDP), The Kraft Heinz Company (NASDAQ:KHC), Prudential Public Limited Company (NYSE:PUK), and Southern Copper Corporation (NYSE:SCCO). This group of stocks' market valuations match DG's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RACE,27,992822,1 NEM,55,1255898,12 PINS,63,2915471,-20 KDP,28,1197414,-2 KHC,33,13577456,0 PUK,4,9037,2 SCCO,23,552258,-4 Average,33.3,2928622,-1.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.3 hedge funds with bullish positions and the average amount invested in these stocks was $2929 million. That figure was $1647 million in DG's case. Pinterest, Inc. (NYSE:PINS) is the most popular stock in this table. On the other hand Prudential Public Limited Company (NYSE:PUK) is the least popular one with only 4 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 overall hedge fund sentiment score for DG is 52.9. 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. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 22.9% in 2021 through October 1st and beat the market again by 5.6 percentage points. Unfortunately DG wasn't nearly as popular as these 5 stocks and hedge funds that were betting on DG were disappointed as the stock returned -3.1% since the end of June (through 10/1) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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