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Is Arcos Dorados Holding Inc (NYSE:ARCO) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Is ARCO a good stock to buy now? Prominent investors were in a pessimistic mood. The number of long hedge fund positions were cut by 3 recently. Arcos Dorados Holding Inc (NYSE:ARCO) was in 12 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistics is 20. Our calculations also showed that ARCO isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 15 hedge funds in our database with ARCO positions at the end of the second quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Peter Rathjens of Arrowstreet Capital
At Insider Monkey we scour multiple sources to uncover 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 15 best blue chip stocks 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. Keeping this in mind let's take a peek at the new hedge fund action surrounding Arcos Dorados Holding Inc (NYSE:ARCO).
Do Hedge Funds Think ARCO Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from one quarter earlier. By comparison, 14 hedge funds held shares or bullish call options in ARCO a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Moerus Capital Management held the most valuable stake in Arcos Dorados Holding Inc (NYSE:ARCO), which was worth $22.8 million at the end of the third quarter. On the second spot was Millennium Management which amassed $6.2 million worth of shares. Marshall Wace LLP, Contrarius Investment Management, and Arrowstreet Capital 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 Moerus Capital Management allocated the biggest weight to Arcos Dorados Holding Inc (NYSE:ARCO), around 11.12% of its 13F portfolio. Contrarius Investment Management is also relatively very bullish on the stock, designating 0.19 percent of its 13F equity portfolio to ARCO.
Seeing as Arcos Dorados Holding Inc (NYSE:ARCO) has faced bearish sentiment from hedge fund managers, it's safe to say that there were a few money managers that decided to sell off their entire stakes heading into Q4. It's worth mentioning that Michael Larson's Bill & Melinda Gates Foundation Trust cut the largest position of the 750 funds tracked by Insider Monkey, worth about $12.8 million in stock. Renaissance Technologies, also said goodbye to its stock, about $2.5 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 3 funds heading into Q4.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Arcos Dorados Holding Inc (NYSE:ARCO) but similarly valued. These stocks are NextGen Healthcare, Inc. (NASDAQ:NXGN), Tompkins Financial Corporation (NYSE:TMP), Kaiser Aluminum Corp. (NASDAQ:KALU), Krystal Biotech, Inc. (NASDAQ:KRYS), Lantheus Holdings Inc (NASDAQ:LNTH), Perdoceo Education Corporation (NASDAQ:PRDO), and OneSpan Inc. (NASDAQ:OSPN). All of these stocks' market caps are closest to ARCO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NXGN,16,28532,-1 TMP,7,9977,3 KALU,16,55745,0 KRYS,10,196697,-3 LNTH,16,150006,-4 PRDO,17,129425,-2 OSPN,13,135496,-2 Average,13.6,100840,-1.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.6 hedge funds with bullish positions and the average amount invested in these stocks was $101 million. That figure was $39 million in ARCO's case. Perdoceo Education Corporation (NASDAQ:PRDO) is the most popular stock in this table. On the other hand Tompkins Financial Corporation (NYSE:TMP) is the least popular one with only 7 bullish hedge fund positions. Arcos Dorados Holding Inc (NYSE:ARCO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ARCO is 45. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on ARCO as the stock returned 30.3% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.