Is Green Mountain Coffee Roasters Inc. (GMCR) A Good Stock To Buy?

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the third quarter we observed increased volatility and small-cap stocks underperformed the market. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) to find out whether it was one of their high conviction long-term ideas.

Green Mountain Coffee Roasters Inc. shareholders have witnessed a decrease in enthusiasm from smart money in recent months. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as New York Community Bancorp, Inc. (NYSE:NYCB), Verisign, Inc. (NASDAQ:VRSN), and SEI Investments Company (NASDAQ:SEIC) to gather more data points.

According to most stock holders, hedge funds are assumed to be worthless, old investment tools of the past. While there are over 8,000 funds trading at the moment, We hone in on the elite of this club, around 700 funds. These investment experts have their hands on bulk of the smart money’s total asset base, and by tracking their best picks, Insider Monkey has figured out several investment strategies that have historically surpassed Mr. Market. Insider Monkey’s small-cap hedge fund strategy outpaced the S&P 500 index by 12 percentage points per year for a decade in their back tests.

With all of this in mind, let’s go over the recent action encompassing Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR).

What does the smart money think about Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR)?

At Q3’s end, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of -45% from the second quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Ricky Sandler’s Eminence Capital has the largest position in Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR), worth close to $194.1 million, comprising 3% of its total 13F portfolio. The second most bullish fund manager is Legg Mason Capital Management, led by Bill Miller, holding a $82.3 million position; 1.7% of its 13F portfolio is allocated to the company. Other professional money managers with similar optimism include Brett Barakett’s Tremblant Capital, Joel Greenblatt’s Gotham Asset Management and Matthew Hulsizer’s PEAK6 Capital Management.

Judging by the fact that Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) has faced bearish sentiment from the aggregate hedge fund industry, we can see that there was a specific group of fund managers that decided to sell off their full holdings last quarter. Interestingly, Edward Goodnow’s Goodnow Investment Group said goodbye to the biggest investment of the 700 funds monitored by Insider Monkey, worth about $41.6 million in stock. Jim Simons’s fund, Renaissance Technologies, also sold off its stock, about $41.1 million worth. These transactions are important to note, as total hedge fund interest dropped by 13 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR). These stocks are New York Community Bancorp, Inc. (NYSE:NYCB), Verisign, Inc. (NASDAQ:VRSN), SEI Investments Company (NASDAQ:SEIC), and Coach, Inc. (NYSE:COH). This group of stocks’ market caps match GMCR’s market cap.

As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $754 million. That figure was $466 million in GMCR’s case. Verisign, Inc. (NASDAQ:VRSN) is the most popular stock in this table. On the other hand New York Community Bancorp, Inc. (NYSE:NYCB) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) is even less popular than NYCB. 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.