Is Darden Restaurants, Inc. (DRI) A Good Stock To Buy?

·6 min read

Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of September. At Insider Monkey, we follow nearly 900 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Darden Restaurants, Inc. (NYSE:DRI), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

Is DRI a good stock to buy? Darden Restaurants, Inc. (NYSE:DRI) was in 49 hedge funds' portfolios at the end of March. The all time high for this statistic is 52. DRI shareholders have witnessed an increase in hedge fund sentiment lately. There were 42 hedge funds in our database with DRI holdings at the end of December. Our calculations also showed that DRI isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

In today’s marketplace there are plenty of signals shareholders use to appraise stocks. A couple of the most useful signals are hedge fund and insider trading sentiment. Our experts have shown that, historically, those who follow the top picks of the best fund managers can outperform their index-focused peers by a significant amount (see the details here). Also, our monthly newsletter's portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .

Ryan Frick Dorsal Capital
Ryan Frick Dorsal Capital

Ryan Frick of Dorsal 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, which is why we are checking out this inflation play. We go through lists like 10 best gold stocks to buy to identify promising stocks. 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 we're going to analyze the fresh hedge fund action regarding Darden Restaurants, Inc. (NYSE:DRI).

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

At the end of the first quarter, a total of 49 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from one quarter earlier. By comparison, 52 hedge funds held shares or bullish call options in DRI 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.

Of the funds tracked by Insider Monkey, Ken Griffin's Citadel Investment Group has the largest position in Darden Restaurants, Inc. (NYSE:DRI), worth close to $204.9 million, corresponding to 0.1% of its total 13F portfolio. The second largest stake is held by Steadfast Capital Management, led by Robert Pitts, holding a $153.6 million position; 1.6% of its 13F portfolio is allocated to the stock. Some other peers with similar optimism consist of Brandon Haley's Holocene Advisors, Gabriel Plotkin's Melvin Capital Management and Ryan Frick and Oliver Evans's Dorsal Capital Management. In terms of the portfolio weights assigned to each position Dorsal Capital Management allocated the biggest weight to Darden Restaurants, Inc. (NYSE:DRI), around 5.23% of its 13F portfolio. DG Capital Management is also relatively very bullish on the stock, designating 2.71 percent of its 13F equity portfolio to DRI.

Now, some big names were breaking ground themselves. Steadfast Capital Management, managed by Robert Pitts, established the most outsized position in Darden Restaurants, Inc. (NYSE:DRI). Steadfast Capital Management had $153.6 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital also made a $23.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Gavin Baker's Atreides Management, Donald Sussman's Paloma Partners, and Anand Parekh's Alyeska Investment Group.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Darden Restaurants, Inc. (NYSE:DRI) but similarly valued. We will take a look at Live Nation Entertainment, Inc. (NYSE:LYV), Conagra Brands, Inc. (NYSE:CAG), United Airlines Holdings Inc (NASDAQ:UAL), Cheniere Energy, Inc. (NYSE:LNG), Amcor plc (NYSE:AMCR), Caesars Entertainment Inc. (NASDAQ:CZR), and Affirm Holdings, Inc. (NASDAQ:AFRM). All of these stocks' market caps match DRI's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LYV,37,1325005,-9 CAG,30,700335,2 UAL,38,1024160,-14 LNG,40,2549760,2 AMCR,17,226541,-2 CZR,76,1520267,5 AFRM,32,582516,32 Average,38.6,1132655,2.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.6 hedge funds with bullish positions and the average amount invested in these stocks was $1133 million. That figure was $1316 million in DRI's case. Caesars Entertainment Inc. (NASDAQ:CZR) is the most popular stock in this table. On the other hand Amcor plc (NYSE:AMCR) is the least popular one with only 17 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. Our overall hedge fund sentiment score for DRI is 65.4. 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 17.4% in 2021 through June 18th and beat the market again by 6.1 percentage points. Unfortunately DRI wasn't nearly as popular as these 5 stocks and hedge funds that were betting on DRI were disappointed as the stock returned -7.8% since the end of March (through 6/18) 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.

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