Starbucks Corporation (SBUX) To Open Roastery in Shanghai as Push Into China Escalates

Starbucks Corporation (NASDAQ:SBUX) is trending today after the company announced that it intends to open its first roastery outside of the United States, which will be located in Shanghai, China and is expected to open in 2017. Given its large population, China is a very important growth market for Starbucks. The chain currently has over 2,000 stores in 100 cities in the country and is adding around ten new stores each week. If China succeeds in growing its middle class to over 600 million people over the next decade and many become hooked on Starbucks’ products, the growth prospects for the company would be enormous. Shares of Starbucks are up very slightly in morning trading today.

How do you pick the next stock to invest in? One way would be to spend hours of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors (see the details here). With this in mind, let’s take a look at the recent hedge fund activity surrounding Starbucks Corporation (NASDAQ:SBUX).

Starbucks Corporation (NASDAQ:SBUX) was in 52 hedge funds’ portfolios at the end of the first quarter of 2016. SBUX has seen a decrease in activity from the world’s largest hedge funds recently. There were 61 hedge funds in our database with SBUX positions at the end of the previous quarter. 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 Honeywell International Inc. (NYSE:HON), Royal Bank of Canada (USA) (NYSE:RY), and The Boeing Company (NYSE:BA) to gather more data points.

Of the funds tracked by Insider Monkey, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the most valuable position in Starbucks Corporation (NASDAQ:SBUX). Arrowstreet Capital has a $341.4 million position in the stock, comprising 1.4% of its 13F portfolio. The second largest stake is held by Adage Capital Management, led by Phill Gross and Robert Atchinson, holding a $131.8 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that are bullish contain Paul Marshall and Ian Wace’s Marshall Wace LLP, David Stemerman’s Conatus Capital Management, and David Harding’s Winton Capital Management.

On the next page we’ll look at some funds that sold off positions in Starbucks during Q1, as well as compare the stock to a handful of others with similar market caps.

Seeing as Starbucks Corporation (NASDAQ:SBUX) has faced a declination in interest from hedge fund managers, it’s safe to say that there was a specific group of hedge funds that decided to sell off their entire stakes heading into Q2. Intriguingly, Charles Clough’s Clough Capital Partners dropped the largest position of all the hedgies tracked by Insider Monkey, totaling an estimated $33.2 million in stock. Gabriel Plotkin’s fund, Melvin Capital Management, also sold off its stock, about $31.5 million worth. These transactions are interesting, as total hedge fund interest dropped by 9 funds heading into Q2.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Starbucks Corporation (NASDAQ:SBUX) but similarly valued. These stocks are Honeywell International Inc. (NYSE:HON), Royal Bank of Canada (USA) (NYSE:RY), The Boeing Company (NYSE:BA), and United Technologies Corporation (NYSE:UTX). All of these stocks’ market caps are closest to SBUX’s market cap.

As you can see these stocks had an average of 40 hedge funds with bullish positions and the average amount invested in these stocks was $1.76 billion. That figure was $1.52 billion in SBUX’s case. Honeywell International Inc. (NYSE:HON) is the most popular stock in this table. On the other hand Royal Bank of Canada (USA) (NYSE:RY) is the least popular one with only 16 bullish hedge fund positions. Starbucks Corporation (NASDAQ:SBUX) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard HON might be a better candidate to consider a long position.

Disclosure: None