Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Chewy, Inc. (NYSE:CHWY)? The smart money sentiment can provide an answer to this question.
Chewy, Inc. (NYSE:CHWY) has seen an increase in support from the world's most elite money managers of late. CHWY was in 38 hedge funds' portfolios at the end of the second quarter of 2019. There were 0 hedge funds in our database with CHWY positions at the end of the previous quarter. Our calculations also showed that CHWY isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a glance at the key hedge fund action regarding Chewy, Inc. (NYSE:CHWY).
What does smart money think about Chewy, Inc. (NYSE:CHWY)?
At the end of the second quarter, a total of 38 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 38 from the previous quarter. By comparison, 0 hedge funds held shares or bullish call options in CHWY a year ago. So, let's examine 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, Lone Pine Capital, managed by Stephen Mandel, holds the number one position in Chewy, Inc. (NYSE:CHWY). Lone Pine Capital has a $115.3 million position in the stock, comprising 0.7% of its 13F portfolio. On Lone Pine Capital's heels is D1 Capital Partners, led by Daniel Sundheim, holding a $68.6 million position; the fund has 1% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that hold long positions encompass Kevin Michael Ulrich and Anthony Davis's Anchorage Advisors, Andreas Halvorsen's Viking Global and Gabriel Plotkin's Melvin Capital Management.
Now, specific money managers have jumped into Chewy, Inc. (NYSE:CHWY) headfirst. Lone Pine Capital, managed by Stephen Mandel, assembled the largest position in Chewy, Inc. (NYSE:CHWY). Lone Pine Capital had $115.3 million invested in the company at the end of the quarter. Daniel Sundheim's D1 Capital Partners also made a $68.6 million investment in the stock during the quarter. The following funds were also among the new CHWY investors: Kevin Michael Ulrich and Anthony Davis's Anchorage Advisors, Andreas Halvorsen's Viking Global, and Gabriel Plotkin's Melvin Capital Management.
Let's also examine hedge fund activity in other stocks similar to Chewy, Inc. (NYSE:CHWY). These stocks are Take-Two Interactive Software, Inc. (NASDAQ:TTWO), Wayfair Inc (NYSE:W), Seagate Technology plc (NASDAQ:STX), and Lincoln National Corporation (NYSE:LNC). This group of stocks' market caps are similar to CHWY's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TTWO,60,1521405,10 W,32,2313806,2 STX,23,1870540,-1 LNC,35,620312,-5 Average,37.5,1581516,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 37.5 hedge funds with bullish positions and the average amount invested in these stocks was $1582 million. That figure was $621 million in CHWY's case. Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is the most popular stock in this table. On the other hand Seagate Technology plc (NASDAQ:STX) is the least popular one with only 23 bullish hedge fund positions. Chewy, Inc. (NYSE:CHWY) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CHWY wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CHWY were disappointed as the stock returned -29.8% during the third quarter 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.