Is Companhia de Saneamento Basico do Estado de Sao Paulo - SABESP (NYSE:SBS) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Is Companhia de Saneamento Basico do Estado de Sao Paulo - SABESP (NYSE:SBS) the right pick for your portfolio? Investors who are in the know are getting less optimistic. The number of long hedge fund positions retreated by 4 in recent months. Our calculations also showed that SBS isn't among the 30 most popular stocks among hedge funds (see the video below). SBS was in 12 hedge funds' portfolios at the end of the second quarter of 2019. There were 16 hedge funds in our database with SBS 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.
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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Unlike this former hedge fund manager 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 take a gander at the new hedge fund action encompassing Companhia de Saneamento Basico do Estado de Sao Paulo - SABESP (NYSE:SBS).
How have hedgies been trading Companhia de Saneamento Basico do Estado de Sao Paulo - SABESP (NYSE:SBS)?
Heading into the third quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in SBS over the last 16 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.
More specifically, AQR Capital Management was the largest shareholder of Companhia de Saneamento Basico do Estado de Sao Paulo - SABESP (NYSE:SBS), with a stake worth $168.9 million reported as of the end of March. Trailing AQR Capital Management was Renaissance Technologies, which amassed a stake valued at $89.9 million. Impax Asset Management, Arrowstreet Capital, and GLG Partners were also very fond of the stock, giving the stock large weights in their portfolios.
Because Companhia de Saneamento Basico do Estado de Sao Paulo - SABESP (NYSE:SBS) has experienced a decline in interest from the smart money, we can see that there is a sect of funds who were dropping their full holdings by the end of the second quarter. At the top of the heap, D. E. Shaw's D E Shaw cut the largest investment of the "upper crust" of funds followed by Insider Monkey, comprising about $2.3 million in stock. Ken Griffin's fund, Citadel Investment Group, also sold off its stock, about $0.6 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 4 funds by the end of the second quarter.
Let's now review hedge fund activity in other stocks similar to Companhia de Saneamento Basico do Estado de Sao Paulo - SABESP (NYSE:SBS). These stocks are StoneCo Ltd. (NASDAQ:STNE), Gaming and Leisure Properties Inc (NASDAQ:GLPI), Graco Inc. (NYSE:GGG), and Tyler Technologies, Inc. (NYSE:TYL). This group of stocks' market valuations are closest to SBS's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position STNE,27,1129870,4 GLPI,27,783348,0 GGG,24,203550,6 TYL,24,540132,-7 Average,25.5,664225,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $664 million. That figure was $452 million in SBS's case. StoneCo Ltd. (NASDAQ:STNE) is the most popular stock in this table. On the other hand Graco Inc. (NYSE:GGG) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks Companhia de Saneamento Basico do Estado de Sao Paulo - SABESP (NYSE:SBS) is even less popular than GGG. Hedge funds dodged a bullet by taking a bearish stance towards SBS. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately SBS wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); SBS investors were disappointed as the stock returned -2.4% 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.