Billionaire hedge fund managers such as David Abrams, Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the nearly unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.
Is Arcos Dorados Holdings Inc. (NYSE:ARCO) an exceptional investment now? Hedge funds are selling. The number of long hedge fund bets were cut by 4 lately. Our calculations also showed that ARCO isn't among the 30 most popular stocks among hedge funds (see the video below). ARCO was in 14 hedge funds' portfolios at the end of the second quarter of 2019. There were 18 hedge funds in our database with ARCO positions at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Today there are many signals stock market investors employ to size up publicly traded companies. Two of the most under-the-radar signals are hedge fund and insider trading interest. Our experts have shown that, historically, those who follow the best picks of the best money managers can outperform the market by a superb margin (see the details here).
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's review the key hedge fund action encompassing Arcos Dorados Holdings Inc. (NYSE:ARCO).
Hedge fund activity in Arcos Dorados Holdings Inc. (NYSE:ARCO)
At Q2's end, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -22% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ARCO over the last 16 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, International Value Advisers was the largest shareholder of Arcos Dorados Holdings Inc. (NYSE:ARCO), with a stake worth $52.2 million reported as of the end of March. Trailing International Value Advisers was Moerus Capital Management, which amassed a stake valued at $42.4 million. Bill & Melinda Gates Foundation Trust, Two Sigma Advisors, and Marshall Wace LLP were also very fond of the stock, giving the stock large weights in their portfolios.
Since Arcos Dorados Holdings Inc. (NYSE:ARCO) has experienced falling interest from the smart money, it's easy to see that there exists a select few hedgies that decided to sell off their full holdings last quarter. At the top of the heap, Andrew Feldstein and Stephen Siderow's Blue Mountain Capital dropped the biggest position of the "upper crust" of funds followed by Insider Monkey, totaling close to $0.8 million in stock. David Costen Haley's fund, HBK Investments, also said goodbye to its stock, about $0.6 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 4 funds last quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Arcos Dorados Holdings Inc. (NYSE:ARCO) but similarly valued. These stocks are Inspire Medical Systems, Inc. (NYSE:INSP), RPC, Inc. (NYSE:RES), First Busey Corporation (NASDAQ:BUSE), and Brinker International, Inc. (NYSE:EAT). This group of stocks' market valuations resemble ARCO's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position INSP,19,287939,1 RES,16,83837,-4 BUSE,11,42651,-2 EAT,28,238224,-1 Average,18.5,163163,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $163 million. That figure was $123 million in ARCO's case. Brinker International, Inc. (NYSE:EAT) is the most popular stock in this table. On the other hand First Busey Corporation (NASDAQ:BUSE) is the least popular one with only 11 bullish hedge fund positions. Arcos Dorados Holdings Inc. (NYSE:ARCO) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately ARCO wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ARCO investors were disappointed as the stock returned -7.3% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.