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Is Home Depot (HD) Stock A Buy or Sell?

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At Insider Monkey, we pore over the filings of nearly 887 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of December 31st. In this article, we will use that wealth of knowledge to determine whether or not The Home Depot, Inc. (NYSE:HD) makes for a good investment right now.

Is Home Depot (HD) stock a buy or sell? The smart money was in an optimistic mood. The number of long hedge fund bets advanced by 6 in recent months. The Home Depot, Inc. (NYSE:HD) was in 79 hedge funds' portfolios at the end of December. 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 Q4 rankings).

Phill Gross Adage Capital Phillip Gross
Phill Gross Adage Capital Phillip Gross

Phillip Gross of Adage Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 best cheap stocks to buy now 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 (or at the end of this article). With all of this in mind we're going to take a peek at the new hedge fund action surrounding The Home Depot, Inc. (NYSE:HD).

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

At the end of the fourth quarter, a total of 79 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from one quarter earlier. On the other hand, there were a total of 91 hedge funds with a bullish position in HD a year ago. So, let's review 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 $1818.4 million reported as of the end of December. Trailing Fisher Asset Management was AQR Capital Management, which amassed a stake valued at $482.2 million. Two Sigma Advisors, Adage Capital Management, and Citadel Investment Group 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 Pittencrieff Partners - Gabalex Capital allocated the biggest weight to The Home Depot, Inc. (NYSE:HD), around 6.76% of its 13F portfolio. Chilton Investment Company is also relatively very bullish on the stock, dishing out 6.06 percent of its 13F equity portfolio to HD.

Now, some big names have jumped into The Home Depot, Inc. (NYSE:HD) headfirst. Voleon Capital, managed by Michael Kharitonov and Jon David McAuliffe, initiated the largest position in The Home Depot, Inc. (NYSE:HD). Voleon Capital had $37.7 million invested in the company at the end of the quarter. Brian Scudieri's Kehrs Ridge Capital also initiated a $10.6 million position during the quarter. The other funds with brand new HD positions are Greg Poole's Echo Street Capital Management, Jinghua Yan's TwinBeech Capital, and Mark R. Freeman's Socorro Asset Management.

Let's go over hedge fund activity in other stocks similar to The Home Depot, Inc. (NYSE:HD). We will take a look at Paypal Holdings Inc (NASDAQ:PYPL), Bank of America Corporation (NYSE:BAC), Verizon Communications Inc. (NYSE:VZ), Adobe Inc. (NASDAQ:ADBE), Comcast Corporation (NASDAQ:CMCSA), Netflix, Inc. (NASDAQ:NFLX), and The Coca-Cola Company (NYSE:KO). This group of stocks' market values resemble HD's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PYPL,147,15961182,-3 BAC,99,35340008,11 VZ,67,10502830,2 ADBE,114,11927730,8 CMCSA,84,8831767,2 NFLX,116,15633343,12 KO,62,24683372,2 Average,98.4,17554319,4.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 98.4 hedge funds with bullish positions and the average amount invested in these stocks was $17554 million. That figure was $4924 million in HD's case. Paypal Holdings Inc (NASDAQ:PYPL) is the most popular stock in this table. On the other hand The Coca-Cola Company (NYSE:KO) is the least popular one with only 62 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 46. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 7% in 2021 through March 12th and surpassed the market again by 1.6 percentage points. Unfortunately HD wasn't nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); HD investors were disappointed as the stock returned 3.5% since the end of December (through 3/12) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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

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