Hedge Funds Are Betting On Arcos Dorados Holding Inc (ARCO)

Before we spend days researching a stock idea we’d like to take a look at how hedge funds and billionaire investors recently traded that stock. S&P 500 Index ETF (SPY) lost 8.7% through October 26th. Forty percent of the S&P 500 constituents were down more than 10%. The average return of a randomly picked stock in the index is -9.5%. This means you (or a monkey throwing a dart) have less than an even chance of beating the market by randomly picking a stock. On the other hand, the top 25 most popular S&P 500 stocks among hedge funds had an average loss of 8.8%. In this article, we will take a look at what hedge funds think about Arcos Dorados Holding Inc (NYSE:ARCO).

Is Arcos Dorados Holding Inc (NYSE:ARCO) undervalued? Prominent investors are in an optimistic mood. The number of bullish hedge fund bets rose by 5 lately. Our calculations also showed that arco isn’t among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Overdeck of Two Sigma

Let’s take a peek at the latest hedge fund action regarding Arcos Dorados Holding Inc (NYSE:ARCO).

How are hedge funds trading Arcos Dorados Holding Inc (NYSE:ARCO)?

Heading into the fourth quarter of 2018, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 38% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ARCO over the last 13 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with ARCO Positions

Among these funds, International Value Advisers held the most valuable stake in Arcos Dorados Holding Inc (NYSE:ARCO), which was worth $64.2 million at the end of the third quarter. On the second spot was Bill & Melinda Gates Foundation Trust which amassed $19.1 million worth of shares. Moreover, Marshall Wace LLP, Two Sigma Advisors, and Millennium Management were also bullish on Arcos Dorados Holding Inc (NYSE:ARCO), allocating a large percentage of their portfolios to this stock.

With a general bullishness amongst the heavyweights, some big names have been driving this bullishness. International Value Advisers, managed by Charles de Vaulx, assembled the largest position in Arcos Dorados Holding Inc (NYSE:ARCO). International Value Advisers had $64.2 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also made a $6.5 million investment in the stock during the quarter. The following funds were also among the new ARCO investors: Tsachy Mishal’s TAM Capital Management, David Kowitz and Sheldon Kasowitz’s Indus Capital, and Stephen C. Freidheim’s Cyrus Capital Partners.

Let’s also examine hedge fund activity in other stocks similar to Arcos Dorados Holding Inc (NYSE:ARCO). We will take a look at AZZ Incorporated (NYSE:AZZ), Cardiovascular Systems Inc (NASDAQ:CSII), CBIZ, Inc. (NYSE:CBZ), and Fitbit Inc (NYSE:FIT). This group of stocks’ market valuations are similar to ARCO’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AZZ 14 46315 4
CSII 22 184900 3
CBZ 15 181773 3
FIT 17 85762 -3
Average 17 124688 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $125 million. That figure was $104 million in ARCO’s case. Cardiovascular Systems Inc (NASDAQ:CSII) is the most popular stock in this table. On the other hand AZZ Incorporated (NYSE:AZZ) is the least popular one with only 14 bullish hedge fund positions. Arcos Dorados Holding Inc (NYSE:ARCO) 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 CSII might be a better candidate to consider a long position.

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