In this article we will check out the progression of hedge fund sentiment towards StoneCo Ltd. (NASDAQ:STNE) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is STNE a good stock to buy? The smart money was getting more bullish. The number of long hedge fund positions inched up by 3 lately. StoneCo Ltd. (NASDAQ:STNE) was in 38 hedge funds' portfolios at the end of September. The all time high for this statistic is 35. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that STNE 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). There were 35 hedge funds in our database with STNE positions at the end of the second quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 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 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Eashwar Krishnan of Tybourne Capital Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis 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. With all of this in mind we're going to review the fresh hedge fund action encompassing StoneCo Ltd. (NASDAQ:STNE).
Do Hedge Funds Think STNE Is A Good Stock To Buy Now?
At the end of September, a total of 38 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 9% from one quarter earlier. By comparison, 28 hedge funds held shares or bullish call options in STNE a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Berkshire Hathaway held the most valuable stake in StoneCo Ltd. (NASDAQ:STNE), which was worth $749.3 million at the end of the third quarter. On the second spot was Lone Pine Capital which amassed $438.8 million worth of shares. Whale Rock Capital Management, Tybourne Capital Management, and Foxhaven Asset Management 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 Prince Street Capital Management allocated the biggest weight to StoneCo Ltd. (NASDAQ:STNE), around 9.09% of its 13F portfolio. ThornTree Capital Partners is also relatively very bullish on the stock, setting aside 6.2 percent of its 13F equity portfolio to STNE.
With a general bullishness amongst the heavyweights, key money managers were leading the bulls' herd. Lone Pine Capital, assembled the largest position in StoneCo Ltd. (NASDAQ:STNE). Lone Pine Capital had $438.8 million invested in the company at the end of the quarter. Eashwar Krishnan's Tybourne Capital Management also initiated a $176.8 million position during the quarter. The other funds with brand new STNE positions are Ravi Chopra's Azora Capital, Peter S. Park's Park West Asset Management, and Steve Cohen's Point72 Asset Management.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as StoneCo Ltd. (NASDAQ:STNE) but similarly valued. These stocks are Trip.com Group Limited (NASDAQ:TCOM), Northern Trust Corporation (NASDAQ:NTRS), Cheniere Energy Partners LP (NYSE:CQP), TransUnion (NYSE:TRU), International Paper Company (NYSE:IP), Teleflex Incorporated (NYSE:TFX), and CBRE Group, Inc. (NYSE:CBRE). This group of stocks' market valuations are similar to STNE's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TCOM,30,1525963,1 NTRS,28,272255,-7 CQP,3,8628,0 TRU,47,1684887,0 IP,32,199317,3 TFX,40,753356,12 CBRE,24,1609802,-5 Average,29.1,864887,0.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.1 hedge funds with bullish positions and the average amount invested in these stocks was $865 million. That figure was $2295 million in STNE's case. TransUnion (NYSE:TRU) is the most popular stock in this table. On the other hand Cheniere Energy Partners LP (NYSE:CQP) is the least popular one with only 3 bullish hedge fund positions. StoneCo Ltd. (NASDAQ:STNE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for STNE is 77.8. 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 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 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. Hedge funds were also right about betting on STNE as the stock returned 59.4% since the end of Q3 (through 12/18) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.