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Is Arcos Dorados Holding Inc (ARCO) A Good Stock To Buy?

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Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Arcos Dorados Holding Inc (NYSE:ARCO).

Is Arcos Dorados Holding Inc (NYSE:ARCO) a good investment right now? Investors who are in the know were selling. The number of long hedge fund positions dropped by 2 lately. Arcos Dorados Holding Inc (NYSE:ARCO) was in 10 hedge funds' portfolios at the end of June. The all time high for this statistic is 20. Our calculations also showed that ARCO isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

Today there are many metrics shareholders use to value publicly traded companies. Two of the most under-the-radar metrics are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the top investment managers can beat the S&P 500 by a healthy amount (see the details here). Also, our monthly newsletter's portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website .

Peter Rathjens Arrowstreet Capital 394
Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey, we scour multiple sources to uncover 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 EV 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. Now let's take a glance 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 third quarter of 2021, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ARCO over the last 24 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Amit Wadhwaney's Moerus Capital Management has the most valuable position in Arcos Dorados Holding Inc (NYSE:ARCO), worth close to $28.4 million, amounting to 13.1% of its total 13F portfolio. The second largest stake is held by Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holding a $7.3 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other peers with similar optimism include David Kowitz and Sheldon Kasowitz's Indus Capital, D. E. Shaw's D E Shaw and Peter Muller's PDT Partners. 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 13.05% of its 13F portfolio. Indus Capital is also relatively very bullish on the stock, dishing out 0.29 percent of its 13F equity portfolio to ARCO.

Judging by the fact that Arcos Dorados Holding Inc (NYSE:ARCO) has experienced falling interest from the smart money, we can see that there were a few funds that decided to sell off their positions entirely last quarter. Intriguingly, Greg Eisner's Engineers Gate Manager dumped the biggest stake of all the hedgies watched by Insider Monkey, valued at about $0.2 million in stock. Michael Gelband's fund, ExodusPoint Capital, also sold off its stock, about $0.1 million worth. These transactions are interesting, as total hedge fund interest fell by 2 funds last quarter.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Arcos Dorados Holding Inc (NYSE:ARCO) but similarly valued. We will take a look at AlloVir, Inc. (NASDAQ:ALVR), ChipMOS Technologies Inc (NASDAQ:IMOS), Stoke Therapeutics, Inc. (NASDAQ:STOK), New Gold Inc. (NYSE:NGD), S & T Bancorp Inc (NASDAQ:STBA), Piedmont Lithium Inc. (NASDAQ:PLL), and ProAssurance Corporation (NYSE:PRA). All of these stocks' market caps resemble ARCO's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALVR,10,95392,1 IMOS,2,55191,-1 STOK,14,181850,-1 NGD,13,69436,-1 STBA,3,1370,1 PLL,8,38070,0 PRA,12,142334,-1 Average,8.9,83378,-0.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.9 hedge funds with bullish positions and the average amount invested in these stocks was $83 million. That figure was $40 million in ARCO's case. Stoke Therapeutics, Inc. (NASDAQ:STOK) is the most popular stock in this table. On the other hand ChipMOS Technologies Inc (NASDAQ:IMOS) is the least popular one with only 2 bullish hedge fund positions. Arcos Dorados Holding Inc (NYSE:ARCO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ARCO is 51.3. 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 25.7% in 2021 through September 27th and beat the market again by 6.2 percentage points. Unfortunately ARCO wasn't nearly as popular as these 5 stocks and hedge funds that were betting on ARCO were disappointed as the stock returned -12.2% since the end of June (through 9/27) 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.