Hedge Funds Can’t Buy Enough Of StoneCo Ltd. (STNE)

In this article we will take a look at whether hedge funds think StoneCo Ltd. (NASDAQ:STNE) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is StoneCo Ltd. (NASDAQ:STNE) a buy here? The smart money is in a bullish mood. The number of long hedge fund positions advanced by 5 recently. 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.

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 51 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Warren Buffett of Berkshire HathawayWarren Buffett

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a peek at the fresh hedge fund action surrounding StoneCo Ltd. (NASDAQ:STNE).

How have hedgies been trading StoneCo Ltd. (NASDAQ:STNE)?

Heading into the second quarter of 2020, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from one quarter earlier. On the other hand, there were a total of 23 hedge funds with a bullish position in STNE a year ago. So, let’s review 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?

Among these funds, Berkshire Hathaway held the most valuable stake in StoneCo Ltd. (NASDAQ:STNE), which was worth $308.4 million at the end of the third quarter. On the second spot was Maverick Capital which amassed $68.7 million worth of shares. Steadfast Capital Management, Light Street Capital, and Whale Rock Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. 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, designating 4.05 percent of its 13F equity portfolio to STNE.

As industrywide interest jumped, key money managers have jumped into StoneCo Ltd. (NASDAQ:STNE) headfirst. Driehaus Capital, managed by Richard Driehaus, initiated the most outsized 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 initiated a $7.8 million position 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 also examine hedge fund activity in other stocks – not necessarily in the same industry as StoneCo Ltd. (NASDAQ:STNE) but similarly valued. We will take a look at Fortune Brands Home & Security Inc (NYSE:FBHS), Halliburton Company (NYSE:HAL), Entegris Inc (NASDAQ:ENTG), and Omega Healthcare Investors Inc (NYSE:OHI). This group of stocks’ market valuations are similar to STNE’s market valuation.

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 8.3% in 2020 through the end of May but still managed to beat the market by 13.2 percentage points. Hedge funds were also right about betting on STNE as the stock returned 45.5% so far in Q2 (through the end of May) 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.