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Is Monster Beverage Corp (MNST) Going to Burn These Hedge Funds?

Asma UL Husna
·6 mins read

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Monster Beverage Corp (NASDAQ:MNST) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Monster Beverage Corp (NASDAQ:MNST) investors should pay attention to a decrease in support from the world's most elite money managers lately. Monster Beverage Corp (NASDAQ:MNST) was in 35 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 45. Our calculations also showed that MNST isn't among the 30 most popular stocks among hedge funds (click for Q2 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.

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Clint Carlson of Carlson Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are also checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world 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. Now we're going to take a look at the recent hedge fund action encompassing Monster Beverage Corp (NASDAQ:MNST).

How are hedge funds trading Monster Beverage Corp (NASDAQ:MNST)?

At Q2's end, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of -19% from the first quarter of 2020. On the other hand, there were a total of 38 hedge funds with a bullish position in MNST a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

The largest stake in Monster Beverage Corp (NASDAQ:MNST) was held by Renaissance Technologies, which reported holding $894.8 million worth of stock at the end of September. It was followed by Broadwood Capital with a $322.8 million position. Other investors bullish on the company included AQR Capital Management, Marshall Wace LLP, and D E Shaw. In terms of the portfolio weights assigned to each position Broadwood Capital allocated the biggest weight to Monster Beverage Corp (NASDAQ:MNST), around 25.23% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, setting aside 0.77 percent of its 13F equity portfolio to MNST.

Seeing as Monster Beverage Corp (NASDAQ:MNST) has witnessed a decline in interest from the entirety of the hedge funds we track, it's easy to see that there was a specific group of fund managers that slashed their positions entirely in the second quarter. It's worth mentioning that Aaron Cowen's Suvretta Capital Management sold off the biggest stake of all the hedgies followed by Insider Monkey, comprising an estimated $62.8 million in stock. Steve Cohen's fund, Point72 Asset Management, also dumped its stock, about $35.5 million worth. These moves are important to note, as total hedge fund interest fell by 8 funds in the second quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Monster Beverage Corp (NASDAQ:MNST) but similarly valued. These stocks are General Motors Company (NYSE:GM), Exelon Corporation (NASDAQ:EXC), Veeva Systems Inc (NYSE:VEEV), Eaton Corporation plc (NYSE:ETN), Las Vegas Sands Corp. (NYSE:LVS), Canadian Pacific Railway Limited (NYSE:CP), and Eni SpA (NYSE:E). This group of stocks' market caps are similar to MNST's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GM,69,4380069,16 EXC,30,772535,-3 VEEV,35,529727,2 ETN,34,560308,-1 LVS,47,2396746,5 CP,36,1635509,4 E,8,43125,3 Average,37,1474003,3.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 37 hedge funds with bullish positions and the average amount invested in these stocks was $1474 million. That figure was $1881 million in MNST's case. General Motors Company (NYSE:GM) is the most popular stock in this table. On the other hand Eni SpA (NYSE:E) is the least popular one with only 8 bullish hedge fund positions. Monster Beverage Corp (NASDAQ:MNST) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MNST is 42.5. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. A small number of hedge funds were also right about betting on MNST as the stock returned 21% since the end of June and outperformed the market by an even larger margin.

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Disclosure: None. This article was originally published at Insider Monkey.

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