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Hedge Funds Are Dumping Chipotle Mexican Grill, Inc. (CMG)

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Chipotle Mexican Grill, Inc. (NYSE:CMG) based on that data and determine whether they were really smart about the stock.

Chipotle Mexican Grill, Inc. (NYSE:CMG) investors should be aware of a decrease in support from the world’s most elite money managers in recent months. Chipotle Mexican Grill, Inc. (NYSE:CMG) was in 41 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 48. Our calculations also showed that CMG isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 percentage points since March 2017 (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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

David E. Shaw of D.E. Shaw

David E. Shaw of D.E. Shaw

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind we’re going to take a look at the recent hedge fund action regarding Chipotle Mexican Grill, Inc. (NYSE:CMG).

How have hedgies been trading Chipotle Mexican Grill, Inc. (NYSE:CMG)?

Heading into the third quarter of 2020, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CMG over the last 20 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is CMG A Good Stock To Buy?

The largest stake in Chipotle Mexican Grill, Inc. (NYSE:CMG) was held by Renaissance Technologies, which reported holding $1698.9 million worth of stock at the end of September. It was followed by Pershing Square with a $1222 million position. Other investors bullish on the company included Citadel Investment Group, Alkeon Capital Management, and D E Shaw. In terms of the portfolio weights assigned to each position Pershing Square allocated the biggest weight to Chipotle Mexican Grill, Inc. (NYSE:CMG), around 15.76% of its 13F portfolio. Park Presidio Capital is also relatively very bullish on the stock, designating 6.48 percent of its 13F equity portfolio to CMG.

Due to the fact that Chipotle Mexican Grill, Inc. (NYSE:CMG) has faced declining sentiment from hedge fund managers, it’s safe to say that there exists a select few funds that elected to cut their entire stakes last quarter. Intriguingly, Eashwar Krishnan’s Tybourne Capital Management cut the biggest stake of the “upper crust” of funds monitored by Insider Monkey, worth an estimated $134.3 million in stock, and Aaron Cowen’s Suvretta Capital Management was right behind this move, as the fund dropped about $42.6 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 7 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to Chipotle Mexican Grill, Inc. (NYSE:CMG). We will take a look at Travelers Companies Inc (NYSE:TRV), ZTO Express (Cayman) Inc. (NYSE:ZTO), Eversource Energy (NYSE:ES), Capital One Financial Corp. (NYSE:COF), Amphenol Corporation (NYSE:APH), T. Rowe Price Group, Inc. (NASDAQ:TROW), and IDEXX Laboratories, Inc. (NASDAQ:IDXX). This group of stocks’ market valuations are similar to CMG’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TRV 28 398629 -1
ZTO 18 715518 3
ES 28 501377 2
COF 55 1908354 5
APH 42 1013347 0
TROW 34 337582 10
IDXX 40 417149 9
Average 35 755994 4

View table here if you experience formatting issues.

As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $756 million. That figure was $3781 million in CMG’s case. Capital One Financial Corp. (NYSE:COF) is the most popular stock in this table. On the other hand ZTO Express (Cayman) Inc. (NYSE:ZTO) is the least popular one with only 18 bullish hedge fund positions. Chipotle Mexican Grill, Inc. (NYSE:CMG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CMG is 54.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 gained 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Hedge funds were also right about betting on CMG as the stock returned 24.5% since Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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