Companhia Brasileira de Distribuicao-ADR (CBD): Are Hedge Funds Right About This Stock?

At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Third Point because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.

Companhia Brasileira de Distribuicao-ADR (NYSE:CBD) was in 6 hedge funds’ portfolios at the end of September. CBD investors should pay attention to a decrease in hedge fund sentiment lately. There were 7 hedge funds in our database with CBD positions at the end of the previous quarter. At the end of this article we will also compare CBD to other stocks including Santander Consumer USA Holdings Inc (NYSE:SC), Carter’s, Inc. (NYSE:CRI), and Acadia Healthcare Company Inc (NASDAQ:ACHC) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

Now, let’s review the new action encompassing Companhia Brasileira de Distribuicao-ADR (NYSE:CBD).

How are hedge funds trading Companhia Brasileira de Distribuicao-ADR (NYSE:CBD)?

Heading into the fourth quarter of 2016, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a decline of 14% from one quarter earlier. On the other hand, there were a total of 3 hedge funds with a bullish position in CBD at the beginning of this year. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Ken Fisher’s Fisher Asset Management has the most valuable position in Companhia Brasileira de Distribuicao-ADR (NYSE:CBD), worth close to $21.1 million. On Fisher Asset Management’s heels is David Kowitz and Sheldon Kasowitz of Indus Capital which holds a $12 million position; 1.1% of its 13F portfolio is allocated to the company. Some other professional money managers that hold long positions encompass John Horseman’s Horseman Capital Management, Andy Redleaf’s Whitebox Advisors and Millennium Management which is one of the 10 largest hedge funds in the world. We should note that two of these hedge funds (Indus Capital and Whitebox Advisors) are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

We already know that not all hedge funds are bullish on the stock and some hedge funds actually dumped their positions entirely. Interestingly, Cliff Asness’ AQR Capital Management dumped the biggest investment of the “upper crust” of funds monitored by Insider Monkey, valued at close to $5.6 million in stock. Renaissance Technologies also dropped its stock, about $0.7 million worth of CBD shares.

Let’s also examine hedge fund activity in other stocks similar to Companhia Brasileira de Distribuicao-ADR (NYSE:CBD). We will take a look at Santander Consumer USA Holdings Inc (NYSE:SC), Carter’s, Inc. (NYSE:CRI), Acadia Healthcare Company Inc (NASDAQ:ACHC), and HollyFrontier Corp (NYSE:HFC). This group of stocks’ market caps are similar to CBD’s market cap.

As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $502 million. That figure was $38 million in CBD’s case. Carter’s, Inc. (NYSE:CRI) is the most popular stock in this table. On the other hand Acadia Healthcare Company Inc (NASDAQ:ACHC) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Companhia Brasileira de Distribuicao-ADR (NYSE:CBD) is even less popular than ACHC. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

Disclosure: None