Was The Smart Money Right About Dollar General Corp. (DG)?

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In this article we will take a look at whether hedge funds think Dollar General Corp. (NYSE:DG) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is Dollar General Corp. (NYSE:DG) a superb investment today? The smart money was becoming more confident. The number of long hedge fund bets increased by 1 in recent months. Dollar General Corp. (NYSE:DG) was in 57 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 67. Our calculations also showed that DG isn’t among the 30 most popular stocks among hedge funds (click for Q4 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 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Dmitry Balyasny of Balyasny Asset Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell 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. With all of this in mind let’s view the latest hedge fund action surrounding Dollar General Corp. (NYSE:DG).

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

At the end of December, a total of 57 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 2% from the previous quarter. By comparison, 50 hedge funds held shares or bullish call options in DG 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.

Among these funds, BlueSpruce Investments held the most valuable stake in Dollar General Corp. (NYSE:DG), which was worth $503.4 million at the end of the fourth quarter. On the second spot was Suvretta Capital Management which amassed $189.5 million worth of shares. AQR Capital Management, Holocene Advisors, and Alkeon Capital Management 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 BlueSpruce Investments allocated the biggest weight to Dollar General Corp. (NYSE:DG), around 9.92% of its 13F portfolio. 12th Street Asset Management is also relatively very bullish on the stock, earmarking 7.56 percent of its 13F equity portfolio to DG.

As industrywide interest jumped, some big names have been driving this bullishness. Balyasny Asset Management, managed by Dmitry Balyasny, established the most valuable position in Dollar General Corp. (NYSE:DG). Balyasny Asset Management had $43.8 million invested in the company at the end of the quarter. Leon Lowenstein’s Lionstone Capital Management also made a $14.2 million investment in the stock during the quarter. The other funds with new positions in the stock are The Motley Fool’s 1623 Capital, Kenneth Tropin’s Graham Capital Management, and Lee Ainslie’s Maverick Capital.

Let’s check out hedge fund activity in other stocks similar to Dollar General Corp. (NYSE:DG). These stocks are ICICI Bank Limited (NYSE:IBN), Boston Scientific Corporation (NYSE:BSX), Northrop Grumman Corporation (NYSE:NOC), UBS Group AG (NYSE:UBS), Southern Copper Corporation (NYSE:SCCO), Waste Management, Inc. (NYSE:WM), and Koninklijke Philips NV (NYSE:PHG). This group of stocks’ market caps match DG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
IBN 29 1080794 5
BSX 58 3632909 -3
NOC 40 1507811 -2
UBS 18 184346 1
SCCO 23 572140 -4
WM 37 2937888 -1
PHG 8 53896 -2
Average 30.4 1424255 -0.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.4 hedge funds with bullish positions and the average amount invested in these stocks was $1424 million. That figure was $1677 million in DG’s case. Boston Scientific Corporation (NYSE:BSX) is the most popular stock in this table. On the other hand Koninklijke Philips NV (NYSE:PHG) is the least popular one with only 8 bullish hedge fund positions. Dollar General Corp. (NYSE:DG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DG is 80.5. 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 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and beat the market again by 1.6 percentage points. Unfortunately DG wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on DG were disappointed as the stock returned 2.5% since the end of December (through 4/30) 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 since 2019.

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