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 McDonald's Corporation (NYSE:MCD).
Is McDonald's Corporation (NYSE:MCD) a good stock to buy now? MCD has experienced an increase in hedge fund interest recently. McDonald's Corporation (NYSE:MCD) was in 65 hedge funds' portfolios at the end of September. The all time high for this statistics is 84. There were 57 hedge funds in our database with MCD positions at the end of the second quarter. Our calculations also showed that MCD 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). 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 leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets. Tesla’s stock price skyrocketed, yet lithium prices are still below their 2019 highs. So, we are checking out this lithium stock right now. We go through lists like the 15 best blue chip stocks to buy 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. Now let's review the latest hedge fund action encompassing McDonald's Corporation (NYSE:MCD).
What does smart money think about McDonald's Corporation (NYSE:MCD)?
At Q3's end, a total of 65 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MCD over the last 21 quarters. With hedge funds' capital changing hands, there exists a select group of key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
The largest stake in McDonald's Corporation (NYSE:MCD) was held by D E Shaw, which reported holding $357.1 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $307.7 million position. Other investors bullish on the company included Melvin Capital Management, Citadel Investment Group, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Locust Wood Capital Advisers allocated the biggest weight to McDonald's Corporation (NYSE:MCD), around 2.44% of its 13F portfolio. Beech Hill Partners is also relatively very bullish on the stock, dishing out 2.33 percent of its 13F equity portfolio to MCD.
As industrywide interest jumped, key money managers were breaking ground themselves. Melvin Capital Management, managed by Gabriel Plotkin, initiated the most valuable position in McDonald's Corporation (NYSE:MCD). Melvin Capital Management had $296.3 million invested in the company at the end of the quarter. Ray Dalio's Bridgewater Associates also made a $77 million investment in the stock during the quarter. The following funds were also among the new MCD investors: Louis Bacon's Moore Global Investments, Steve Cohen's Point72 Asset Management, and Matthew Hulsizer's PEAK6 Capital Management.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as McDonald's Corporation (NYSE:MCD) but similarly valued. These stocks are Novo Nordisk A/S (NYSE:NVO), The Unilever Group (NYSE:UL), Costco Wholesale Corporation (NASDAQ:COST), ASML Holding N.V. (NASDAQ:ASML), AbbVie Inc (NYSE:ABBV), Danaher Corporation (NYSE:DHR), and Amgen, Inc. (NASDAQ:AMGN). This group of stocks' market caps match MCD's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NVO,22,3294003,-2 UL,13,159946,0 COST,73,3850375,12 ASML,23,2057327,-2 ABBV,82,6293077,-7 DHR,75,4702628,-1 AMGN,45,1220712,-6 Average,47.6,3082581,-0.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 47.6 hedge funds with bullish positions and the average amount invested in these stocks was $3083 million. That figure was $2480 million in MCD's case. AbbVie Inc (NYSE:ABBV) is the most popular stock in this table. On the other hand The Unilever Group (NYSE:UL) is the least popular one with only 13 bullish hedge fund positions. McDonald's Corporation (NYSE:MCD) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MCD is 70.9. 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 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 30.7% in 2020 through November 27th and beat the market again by 16.1 percentage points. Unfortunately MCD wasn't nearly as popular as these 20 stocks and hedge funds that were betting on MCD were disappointed as the stock returned -0.5% since the end of September (through 11/27) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.