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Were Hedge Funds Right About Coming Back To Dollar Tree, Inc. (DLTR)?

Reymerlyn Martin
·6 min read

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Dollar Tree, Inc. (NASDAQ:DLTR).

Dollar Tree, Inc. (NASDAQ:DLTR) investors should be aware of an increase in activity from the world's largest hedge funds of late. Dollar Tree, Inc. (NASDAQ:DLTR) was in 60 hedge funds' portfolios at the end of June. The all time high for this statistics is 65. Our calculations also showed that DLTR isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Clint Carlson of Carlson Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. With all of this in mind let's take a look at the latest hedge fund action encompassing Dollar Tree, Inc. (NASDAQ:DLTR).

What does smart money think about Dollar Tree, Inc. (NASDAQ:DLTR)?

Heading into the third quarter of 2020, a total of 60 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 43% from one quarter earlier. On the other hand, there were a total of 49 hedge funds with a bullish position in DLTR a year ago. 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, Akre Capital Management was the largest shareholder of Dollar Tree, Inc. (NASDAQ:DLTR), with a stake worth $421.7 million reported as of the end of September. Trailing Akre Capital Management was Rivulet Capital, which amassed a stake valued at $272.4 million. Palestra Capital Management, Maverick Capital, 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 Rivulet Capital allocated the biggest weight to Dollar Tree, Inc. (NASDAQ:DLTR), around 17.74% of its 13F portfolio. BlueDrive Global Investors is also relatively very bullish on the stock, dishing out 13.11 percent of its 13F equity portfolio to DLTR.

Consequently, key money managers were leading the bulls' herd. Stockbridge Partners, managed by Sharlyn C. Heslam, created the biggest position in Dollar Tree, Inc. (NASDAQ:DLTR). Stockbridge Partners had $43 million invested in the company at the end of the quarter. Jack Woodruff's Candlestick Capital Management also made a $33.7 million investment in the stock during the quarter. The following funds were also among the new DLTR investors: Alexander Mitchell's Scopus Asset Management, Clint Carlson's Carlson Capital, and Anand Parekh's Alyeska Investment Group.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Dollar Tree, Inc. (NASDAQ:DLTR) but similarly valued. We will take a look at LyondellBasell Industries NV (NYSE:LYB), Equity Residential (NYSE:EQR), AvalonBay Communities Inc (NYSE:AVB), Tyson Foods, Inc. (NYSE:TSN), PT Telekomunikasi Indonesia (NYSE:TLK), CrowdStrike Holdings, Inc. (NASDAQ:CRWD), and Align Technology, Inc. (NASDAQ:ALGN). This group of stocks' market values are similar to DLTR's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LYB,32,509614,-3 EQR,33,555124,9 AVB,34,1283293,4 TSN,37,649082,-4 TLK,4,166226,-3 CRWD,78,3277716,13 ALGN,41,1960739,2 Average,37,1200256,2.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 37 hedge funds with bullish positions and the average amount invested in these stocks was $1200 million. That figure was $2268 million in DLTR's case. CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is the most popular stock in this table. On the other hand PT Telekomunikasi Indonesia (NYSE:TLK) is the least popular one with only 4 bullish hedge fund positions. Dollar Tree, Inc. (NASDAQ:DLTR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DLTR is 75.5. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 29.2% in 2020 through October 16th and beat the market by 19.7 percentage points. Unfortunately DLTR wasn't nearly as popular as these 10 stocks and hedge funds that were betting on DLTR were disappointed as the stock returned 3.1% since the end of June (through 10/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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