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Do Hedge Funds Love The Home Depot, Inc. (HD)?

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We at Insider Monkey have gone over 866 13F filings that hedge funds and prominent investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of March 31st. In this article, we look at what those funds think of The Home Depot, Inc. (NYSE:HD) based on that data.

Is The Home Depot, Inc. (NYSE:HD) a worthy investment right now? Prominent investors were in a pessimistic mood. The number of long hedge fund bets shrunk by 11 in recent months. The Home Depot, Inc. (NYSE:HD) was in 68 hedge funds' portfolios at the end of March. The all time high for this statistic is 91. Our calculations also showed that HD isn't among the 30 most popular stocks among hedge funds (click for Q1 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 115 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.

Tom Gayner
Tom Gayner

Tom Gayner of Markel Gayner Asset Management

At Insider Monkey we leave no stone unturned when looking for 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 hydrogen fuel cell 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. Now let's view the fresh hedge fund action surrounding The Home Depot, Inc. (NYSE:HD).

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

At first quarter's end, a total of 68 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in HD over the last 23 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Fisher Asset Management was the largest shareholder of The Home Depot, Inc. (NYSE:HD), with a stake worth $2146.9 million reported as of the end of March. Trailing Fisher Asset Management was Citadel Investment Group, which amassed a stake valued at $602.4 million. AQR Capital Management, Adage Capital Management, and Markel Gayner Asset 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 White Square Capital allocated the biggest weight to The Home Depot, Inc. (NYSE:HD), around 8.12% of its 13F portfolio. Pittencrieff Partners - Gabalex Capital is also relatively very bullish on the stock, dishing out 7.32 percent of its 13F equity portfolio to HD.

Since The Home Depot, Inc. (NYSE:HD) has witnessed falling interest from the entirety of the hedge funds we track, we can see that there is a sect of funds that slashed their entire stakes in the first quarter. Interestingly, Dmitry Balyasny's Balyasny Asset Management dumped the biggest investment of the 750 funds monitored by Insider Monkey, valued at an estimated $54.7 million in stock, and Michael Kharitonov and Jon David McAuliffe's Voleon Capital was right behind this move, as the fund sold off about $37.7 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 11 funds in the first quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as The Home Depot, Inc. (NYSE:HD) but similarly valued. We will take a look at Paypal Holdings Inc (NASDAQ:PYPL), Intel Corporation (NASDAQ:INTC), ASML Holding N.V. (NASDAQ:ASML), Comcast Corporation (NASDAQ:CMCSA), Verizon Communications Inc. (NYSE:VZ), Exxon Mobil Corporation (NYSE:XOM), and Netflix, Inc. (NASDAQ:NFLX). This group of stocks' market caps are similar to HD's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PYPL,143,14717163,-4 INTC,83,7616792,11 ASML,35,3827143,5 CMCSA,88,9762151,4 VZ,69,11383576,2 XOM,65,2770198,2 NFLX,110,14159343,-6 Average,84.7,9176624,2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 84.7 hedge funds with bullish positions and the average amount invested in these stocks was $9177 million. That figure was $4360 million in HD's case. Paypal Holdings Inc (NASDAQ:PYPL) is the most popular stock in this table. On the other hand ASML Holding N.V. (NASDAQ:ASML) is the least popular one with only 35 bullish hedge fund positions. The Home Depot, Inc. (NYSE:HD) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for HD is 31.7. 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 negative signal and 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 17.2% in 2021 through June 11th and surpassed the market again by 3.3 percentage points. Unfortunately HD wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); HD investors were disappointed as the stock returned 2.3% since the end of March (through 6/11) 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 most of these stocks already outperformed the market in 2021.

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

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