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How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Bunge Limited (NYSE:BG).
Is BG stock a buy or sell? Bunge Limited (NYSE:BG) has experienced an increase in hedge fund interest of late. Bunge Limited (NYSE:BG) was in 51 hedge funds' portfolios at the end of December. The all time high for this statistic is 44. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 41 hedge funds in our database with BG holdings at the end of September. Our calculations also showed that BG isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here).
Robert Pohly of Samlyn Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. Recently Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 best biotech stocks to invest in to pick the next stock 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 (or at the end of this article).With all of this in mind we're going to take a look at the latest hedge fund action encompassing Bunge Limited (NYSE:BG).
Do Hedge Funds Think BG Is A Good Stock To Buy Now?
At fourth quarter's end, a total of 51 of the hedge funds tracked by Insider Monkey were long this stock, a change of 24% from the third quarter of 2020. On the other hand, there were a total of 37 hedge funds with a bullish position in BG a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Moore Global Investments was the largest shareholder of Bunge Limited (NYSE:BG), with a stake worth $197.4 million reported as of the end of December. Trailing Moore Global Investments was Adage Capital Management, which amassed a stake valued at $99.5 million. Greenhaven Associates, Millennium Management, and Samlyn 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 Brightline Capital allocated the biggest weight to Bunge Limited (NYSE:BG), around 8.91% of its 13F portfolio. Engine No. 1 LLC is also relatively very bullish on the stock, earmarking 8.7 percent of its 13F equity portfolio to BG.
Now, key hedge funds have jumped into Bunge Limited (NYSE:BG) headfirst. Samlyn Capital, managed by Robert Pohly, established the largest position in Bunge Limited (NYSE:BG). Samlyn Capital had $48.9 million invested in the company at the end of the quarter. David Rosen's Rubric Capital Management also made a $45.9 million investment in the stock during the quarter. The following funds were also among the new BG investors: Wayne Cooperman's Cobalt Capital Management, Chris James's Engine No. 1 LLC, and Till Bechtolsheimer's Arosa Capital Management.
Let's also examine hedge fund activity in other stocks similar to Bunge Limited (NYSE:BG). These stocks are Ultragenyx Pharmaceutical Inc (NASDAQ:RARE), RH (NYSE:RH), Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF), Shaw Communications Inc (NYSE:SJR), The Western Union Company (NYSE:WU), Flex Ltd. (NASDAQ:FLEX), and Newell Brands Inc. (NASDAQ:NWL). This group of stocks' market values match BG's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RARE,26,609331,6 RH,42,1925993,2 KOF,6,384456,0 SJR,19,143455,6 WU,29,491046,-7 FLEX,44,1373056,17 NWL,23,1529633,-4 Average,27,922424,2.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $922 million. That figure was $937 million in BG's case. Flex Ltd. (NASDAQ:FLEX) is the most popular stock in this table. On the other hand Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Bunge Limited (NYSE:BG) is more popular among hedge funds. Our overall hedge fund sentiment score for BG is 90. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks returned 5.3% in 2021 through March 19th but still managed to beat the market by 0.8 percentage points. Hedge funds were also right about betting on BG as the stock returned 20% since the end of December (through 3/19) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.