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Here is What Hedge Funds Think About Chewy, Inc. (CHWY)

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Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Chewy, Inc. (NYSE:CHWY).

Chewy, Inc. (NYSE:CHWY) has experienced an increase in hedge fund sentiment of late. Chewy, Inc. (NYSE:CHWY) was in 43 hedge funds' portfolios at the end of June. The all time high for this statistic is 46. There were 32 hedge funds in our database with CHWY positions at the end of the first quarter. Our calculations also showed that CHWY isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 monthly stock picks returned 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Paul Marshall Marshall Wace
Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, artificial intelligence is one of the fastest-growing industries right now, so we are checking out stock pitches like this emerging AI 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. Now let's view the key hedge fund action regarding Chewy, Inc. (NYSE:CHWY).

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

At the end of the second quarter, a total of 43 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 34% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CHWY over the last 24 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Citadel Investment Group, managed by Ken Griffin, holds the biggest position in Chewy, Inc. (NYSE:CHWY). Citadel Investment Group has a $115.3 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is Zevenbergen Capital Investments, managed by Nancy Zevenbergen, which holds a $103.2 million position; 1.8% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that are bullish encompass Ken Griffin's Citadel Investment Group, Paul Marshall and Ian Wace's Marshall Wace LLP and D. E. Shaw's D E Shaw. In terms of the portfolio weights assigned to each position Rip Road Capital allocated the biggest weight to Chewy, Inc. (NYSE:CHWY), around 6.49% of its 13F portfolio. Berylson Capital Partners is also relatively very bullish on the stock, dishing out 4.58 percent of its 13F equity portfolio to CHWY.

Now, key money managers were breaking ground themselves. Alyeska Investment Group, managed by Anand Parekh, assembled the biggest position in Chewy, Inc. (NYSE:CHWY). Alyeska Investment Group had $13 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital also made a $10.6 million investment in the stock during the quarter. The following funds were also among the new CHWY investors: Suraj Parkash Chopra's Force Hill Capital Management, Seth Wunder's Black-and-White Capital, and Chen Tianqiao's Shanda Asset Management.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Chewy, Inc. (NYSE:CHWY) but similarly valued. These stocks are Stanley Black & Decker, Inc. (NYSE:SWK), First Republic Bank (NYSE:FRC), Wayfair Inc (NYSE:W), Cloudflare, Inc. (NYSE:NET), Liberty Broadband Corp (NASDAQ:LBRDK), STMicroelectronics N.V. (NYSE:STM), and CoStar Group Inc (NASDAQ:CSGP). This group of stocks' market caps match CHWY's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SWK,44,987529,11 FRC,34,1226197,-7 W,35,3902769,-2 NET,43,862578,-2 LBRDK,63,7386186,-7 STM,13,159058,-2 CSGP,49,2816593,6 Average,40.1,2477273,-0.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.1 hedge funds with bullish positions and the average amount invested in these stocks was $2477 million. That figure was $635 million in CHWY's case. Liberty Broadband Corp (NASDAQ:LBRDK) is the most popular stock in this table. On the other hand STMicroelectronics N.V. (NYSE:STM) is the least popular one with only 13 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. Our overall hedge fund sentiment score for CHWY is 68. 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 CHWY wasn't nearly as popular as these 5 stocks and hedge funds that were betting on CHWY were disappointed as the stock returned -15.5% 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.