Will the new coronavirus cause a recession in US in the next 6 months? On February 27th, we put the probability at 75% and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). 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 Chipotle Mexican Grill, Inc. (NYSE:CMG).
Chipotle Mexican Grill, Inc. (NYSE:CMG) has experienced an increase in hedge fund interest lately. CMG was in 48 hedge funds' portfolios at the end of the fourth quarter of 2019. There were 43 hedge funds in our database with CMG holdings at the end of the previous quarter. Our calculations also showed that CMG isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 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.
[caption id="attachment_258234" align="aligncenter" width="397"] Bill Ackman of Pershing Square[/caption]
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, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let's check out the fresh hedge fund action encompassing Chipotle Mexican Grill, Inc. (NYSE:CMG).
What does smart money think about Chipotle Mexican Grill, Inc. (NYSE:CMG)?
Heading into the first quarter of 2020, a total of 48 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 12% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CMG over the last 18 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Chipotle Mexican Grill, Inc. (NYSE:CMG), which was worth $1476.3 million at the end of the third quarter. On the second spot was Pershing Square which amassed $1443.4 million worth of shares. Citadel Investment Group, D E Shaw, and Alkeon Capital 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 Pershing Square allocated the biggest weight to Chipotle Mexican Grill, Inc. (NYSE:CMG), around 22.03% of its 13F portfolio. 13D Management is also relatively very bullish on the stock, designating 5.5 percent of its 13F equity portfolio to CMG.
As industrywide interest jumped, key hedge funds were leading the bulls' herd. Candlestick Capital Management, managed by Jack Woodruff, created the biggest position in Chipotle Mexican Grill, Inc. (NYSE:CMG). Candlestick Capital Management had $58.2 million invested in the company at the end of the quarter. Louis Bacon's Moore Global Investments also initiated a $25.1 million position during the quarter. The following funds were also among the new CMG investors: Benjamin A. Smith's Laurion Capital Management, Lee Ainslie's Maverick Capital, and Gregg Moskowitz's Interval Partners.
Let's check out hedge fund activity in other stocks similar to Chipotle Mexican Grill, Inc. (NYSE:CMG). These stocks are Coca-Cola European Partners plc (NYSE:CCEP), The Kroger Co. (NYSE:KR), Cerner Corporation (NASDAQ:CERN), and Fiat Chrysler Automobiles NV (NYSE:FCAU). This group of stocks' market valuations are closest to CMG's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CCEP,21,222283,4 KR,31,1355820,1 CERN,34,1122502,-4 FCAU,23,970651,-5 Average,27.25,917814,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.25 hedge funds with bullish positions and the average amount invested in these stocks was $918 million. That figure was $3903 million in CMG's case. Cerner Corporation (NASDAQ:CERN) is the most popular stock in this table. On the other hand Coca-Cola European Partners plc (NYSE:CCEP) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Chipotle Mexican Grill, Inc. (NYSE:CMG) is more popular among hedge funds. 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 returned 1.3% in 2020 through May 1st but still managed to beat the market by 12.9 percentage points. Hedge funds were also right about betting on CMG as the stock returned 4.5% so far in 2020 (through May 1st) 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. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.