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Companhia Brasileira de Distrib. (CBD): Are Hedge Funds Right About This Stock?

Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the 12-month period ending October 30. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds’ top consensus picks. This year hedge funds’ top 30 stock picks outperformed the S&P 500 Index by 4 percentage points through the middle of November. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.

Companhia Brasileira de Distrib. (NYSE:CBD) investors should pay attention to an increase in enthusiasm from smart money of late. Our calculations also showed that CBD isn’t among the 30 most popular stocks among hedge funds.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Ken Fisher FISHER ASSET MANAGEMENT

Let’s take a look at the key hedge fund action encompassing Companhia Brasileira de Distrib. (NYSE:CBD).

How are hedge funds trading Companhia Brasileira de Distrib. (NYSE:CBD)?

At the end of the third quarter, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 43% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CBD over the last 13 quarters. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

CBD_dec2018

According to Insider Monkey’s hedge fund database, Fisher Asset Management, managed by Ken Fisher, holds the number one position in Companhia Brasileira de Distrib. (NYSE:CBD). Fisher Asset Management has a $25 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is Renaissance Technologies, led by Jim Simons, holding a $11.8 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors with similar optimism consist of Paul Marshall and Ian Wace’s Marshall Wace LLP, Israel Englander’s Millennium Management and Ken Griffin’s Citadel Investment Group.

Now, key money managers were breaking ground themselves. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, established the biggest position in Companhia Brasileira de Distrib. (NYSE:CBD). Marshall Wace LLP had $4 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $1.2 million investment in the stock during the quarter. The other funds with brand new CBD positions are Matthew Hulsizer’s PEAK6 Capital Management and Mike Vranos’s Ellington.

Let’s now take a look at hedge fund activity in other stocks similar to Companhia Brasileira de Distrib. (NYSE:CBD). These stocks are Store Capital Corporation (NYSE:STOR), LATAM Airlines Group S.A. (NYSE:LTM), Leggett & Platt, Inc. (NYSE:LEG), and Enel Generacion Chile S.A. (NYSE:EOCC). This group of stocks’ market valuations match CBD’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
STOR 19 720759 2
LTM 5 28344 1
LEG 10 26768 -2
EOCC 3 2582 0
Average 9.25 194613 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $195 million. That figure was $48 million in CBD’s case. Store Capital Corporation (NYSE:STOR) is the most popular stock in this table. On the other hand Enel Generacion Chile S.A. (NYSE:EOCC) is the least popular one with only 3 bullish hedge fund positions. Companhia Brasileira de Distrib. (NYSE:CBD) 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 STOR might be a better candidate to consider a long position.

Disclosure: None. This article was originally published at Insider Monkey.

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