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Did Hedge Funds Make The Right Call On StoneCo Ltd. (STNE) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtStoneCo Ltd. (NASDAQ:STNE) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is StoneCo Ltd. (NASDAQ:STNE) a splendid investment right now? Investors who are in the know were in a bullish mood. The number of bullish hedge fund bets rose by 5 lately. Our calculations also showed that STNE isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 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.

Steven Cohen of Point72 Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to go over the fresh hedge fund action regarding StoneCo Ltd. (NASDAQ:STNE).

Hedge fund activity in StoneCo Ltd. (NASDAQ:STNE)

Heading into the second quarter of 2020, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from one quarter earlier. By comparison, 23 hedge funds held shares or bullish call options in STNE a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is STNE A Good Stock To Buy?

According to Insider Monkey’s hedge fund database, Warren Buffett’s Berkshire Hathaway has the most valuable position in StoneCo Ltd. (NASDAQ:STNE), worth close to $308.4 million, accounting for 0.2% of its total 13F portfolio. On Berkshire Hathaway’s heels is Maverick Capital, managed by Lee Ainslie, which holds a $68.7 million position; 1.4% of its 13F portfolio is allocated to the stock. Other members of the smart money that hold long positions contain Robert Pitts’s Steadfast Capital Management, Glen Kacher’s Light Street Capital and Alex Sacerdote’s Whale Rock Capital Management. In terms of the portfolio weights assigned to each position Cartica Management allocated the biggest weight to StoneCo Ltd. (NASDAQ:STNE), around 10.79% of its 13F portfolio. Kora Management is also relatively very bullish on the stock, dishing out 4.05 percent of its 13F equity portfolio to STNE.

As industrywide interest jumped, key money managers were leading the bulls’ herd. Driehaus Capital, managed by Richard Driehaus, assembled the most valuable position in StoneCo Ltd. (NASDAQ:STNE). Driehaus Capital had $13.6 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $7.8 million investment in the stock during the quarter. The following funds were also among the new STNE investors: Phill Gross and Robert Atchinson’s Adage Capital Management, Greg Eisner’s Engineers Gate Manager, and Jinghua Yan’s TwinBeech Capital.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as StoneCo Ltd. (NASDAQ:STNE) but similarly valued. These stocks are Fortune Brands Home & Security Inc (NYSE:FBHS), Halliburton Company (NYSE:HAL), Entegris Inc (NASDAQ:ENTG), and Omega Healthcare Investors Inc (NYSE:OHI). All of these stocks’ market caps resemble STNE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FBHS 31 640066 -3
HAL 32 513523 1
ENTG 19 488063 -5
OHI 17 152576 -1
Average 24.75 448557 -2

View table here if you experience formatting issues.

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 $449 million. That figure was $615 million in STNE’s case. Halliburton Company (NYSE:HAL) is the most popular stock in this table. On the other hand Omega Healthcare Investors Inc (NYSE:OHI) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks StoneCo Ltd. (NASDAQ:STNE) 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 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on STNE as the stock returned 78% in Q2 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.

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