Hedge Funds Have Never Been This Bullish On StoneCo Ltd. (STNE)

Does StoneCo Ltd. (NASDAQ:STNE) represent a good buying opportunity at the moment? Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.

StoneCo Ltd. (NASDAQ:STNE) has seen an increase in activity from the world’s largest hedge funds of late. STNE was in 27 hedge funds’ portfolios at the end of June. There were 23 hedge funds in our database with STNE holdings at the end of the previous quarter. Our calculations also showed that STNE isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 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 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.


Unlike this former hedge fund manager who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a look at the fresh hedge fund action surrounding StoneCo Ltd. (NASDAQ:STNE).

How are hedge funds trading StoneCo Ltd. (NASDAQ:STNE)?

Heading into the third quarter of 2019, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards STNE over the last 16 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

Lone Pine Capital 2015 Q2 Investor Letter

When looking at the institutional investors followed by Insider Monkey, Warren Buffett’s Berkshire Hathaway has the number one position in StoneCo Ltd. (NASDAQ:STNE), worth close to $419.1 million, accounting for 0.2% of its total 13F portfolio. On Berkshire Hathaway’s heels is Steadfast Capital Management, managed by Robert Pitts, which holds a $108.7 million position; 1.4% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that hold long positions contain Alex Sacerdote’s Whale Rock Capital Management, Lee Ainslie’s Maverick Capital and Stephen Mandel’s Lone Pine Capital.

Consequently, key money managers have jumped into StoneCo Ltd. (NASDAQ:STNE) headfirst. Maverick Capital, managed by Lee Ainslie, created the most outsized position in StoneCo Ltd. (NASDAQ:STNE). Maverick Capital had $77.4 million invested in the company at the end of the quarter. Philippe Laffont’s Coatue Management also made a $34.6 million investment in the stock during the quarter. The other funds with brand new STNE positions are Robert Pohly’s Samlyn Capital, Lee Hicks and Jan Koerner’s Park Presidio Capital, and Josh Donfeld and David Rogers’s Castle Hook Partners.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as StoneCo Ltd. (NASDAQ:STNE) but similarly valued. These stocks are Gaming and Leisure Properties Inc (NASDAQ:GLPI), Graco Inc. (NYSE:GGG), Tyler Technologies, Inc. (NYSE:TYL), and Crown Holdings, Inc. (NYSE:CCK). All of these stocks’ market caps are similar to STNE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GLPI 27 783348 0
GGG 24 203550 6
TYL 24 540132 -7
CCK 35 877153 -3
Average 27.5 601046 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $601 million. That figure was $1130 million in STNE’s case. Crown Holdings, Inc. (NYSE:CCK) is the most popular stock in this table. On the other hand Graco Inc. (NYSE:GGG) is the least popular one with only 24 bullish hedge fund positions. StoneCo Ltd. (NASDAQ:STNE) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on STNE as the stock returned 17.6% during the same time frame and outperformed the market by an even larger margin.

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