Hedge funds are not perfect. They have their bad picks just like everyone else. Facebook, a stock hedge funds have loved dearly, lost nearly 40% of its value at one point in 2018. Although hedge funds are not perfect, their consensus picks do deliver solid returns, however. Our data show the top 20 S&P 500 stocks among hedge funds beat the S&P 500 Index by more than 6 percentage points so far in 2019. Because hedge funds have a lot of resources and their consensus picks do well, we pay attention to what they think. In this article, we analyze what the elite funds think of Darden Restaurants, Inc. (NYSE:DRI).
Darden Restaurants, Inc. (NYSE:DRI) investors should pay attention to an increase in enthusiasm from smart money in recent months. DRI was in 38 hedge funds' portfolios at the end of the first quarter of 2019. There were 37 hedge funds in our database with DRI positions at the end of the previous quarter. Our calculations also showed that DRI isn't among the 30 most popular stocks among hedge funds.
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.
We're going to go over the key hedge fund action surrounding Darden Restaurants, Inc. (NYSE:DRI).
What have hedge funds been doing with Darden Restaurants, Inc. (NYSE:DRI)?
Heading into the second quarter of 2019, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from the fourth quarter of 2018. By comparison, 28 hedge funds held shares or bullish call options in DRI a year ago. With hedge funds' capital changing hands, there exists a few key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
The largest stake in Darden Restaurants, Inc. (NYSE:DRI) was held by AQR Capital Management, which reported holding $321.8 million worth of stock at the end of March. It was followed by Two Sigma Advisors with a $164.2 million position. Other investors bullish on the company included Arrowstreet Capital, Melvin Capital Management, and Point72 Asset Management.
Now, key hedge funds have been driving this bullishness. Interval Partners, managed by Gregg Moskowitz, initiated the most valuable position in Darden Restaurants, Inc. (NYSE:DRI). Interval Partners had $27 million invested in the company at the end of the quarter. Ken Griffin's Citadel Investment Group also initiated a $16.3 million position during the quarter. The other funds with new positions in the stock are Andrew Feldstein and Stephen Siderow's Blue Mountain Capital, Gabriel Plotkin's Melvin Capital Management, and Doug Gordon, Jon Hilsabeck and Don Jabro's Shellback Capital.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Darden Restaurants, Inc. (NYSE:DRI) but similarly valued. These stocks are Citizens Financial Group Inc (NYSE:CFG), HCP, Inc. (NYSE:HCP), Loews Corporation (NYSE:L), and Canopy Growth Corporation (NYSE:CGC). All of these stocks' market caps resemble DRI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CFG,41,1207295,-2 HCP,26,661094,-2 L,20,235814,-1 CGC,6,72973,1 Average,23.25,544294,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $544 million. That figure was $1017 million in DRI's case. Citizens Financial Group Inc (NYSE:CFG) is the most popular stock in this table. On the other hand Canopy Growth Corporation (NYSE:CGC) is the least popular one with only 6 bullish hedge fund positions. Darden Restaurants, Inc. (NYSE:DRI) 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately DRI wasn't nearly as popular as these 20 stocks and hedge funds that were betting on DRI were disappointed as the stock returned -2.5% during the same period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.