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Hedge Funds (Not Ackman) Are Dumping Starbucks Corporation (SBUX)

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Starbucks Corporation (NASDAQ:SBUX) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Is Starbucks Corporation (NASDAQ:SBUX) the right pick for your portfolio? Prominent investors were selling. The number of long hedge fund positions were trimmed by 14 lately. Starbucks Corporation (NASDAQ:SBUX) was in 54 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 68. Our calculations also showed that SBUX 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.

CITADEL INVESTMENT GROUP

Ken Griffin of Citadel Investment Group

At Insider Monkey we scour multiple sources to uncover the next great investment idea. 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.. We go through lists like the 10 most profitable companies in America 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now let’s take a peek at the fresh hedge fund action surrounding Starbucks Corporation (NASDAQ:SBUX).

What have hedge funds been doing with Starbucks Corporation (NASDAQ:SBUX)?

At the end of the second quarter, a total of 54 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -21% from the previous quarter. By comparison, 49 hedge funds held shares or bullish call options in SBUX a year ago. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Is SBUX A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Pershing Square, managed by Bill Ackman, holds the most valuable position in Starbucks Corporation (NASDAQ:SBUX). Pershing Square has a $745.5 million position in the stock, comprising 9.6% of its 13F portfolio. Sitting at the No. 2 spot is Cedar Rock Capital, led by Andy Brown, holding a $595.7 million position; the fund has 14.5% of its 13F portfolio invested in the stock. Other peers that are bullish encompass Ken Fisher’s Fisher Asset Management, D. E. Shaw’s D E Shaw and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Pacifica Capital Investments allocated the biggest weight to Starbucks Corporation (NASDAQ:SBUX), around 15.38% of its 13F portfolio. Cedar Rock Capital is also relatively very bullish on the stock, designating 14.49 percent of its 13F equity portfolio to SBUX.

Seeing as Starbucks Corporation (NASDAQ:SBUX) has faced a decline in interest from hedge fund managers, it’s easy to see that there was a specific group of hedgies who sold off their positions entirely last quarter. Interestingly, Tim Hurd and Ed Magnus’s BlueSpruce Investments said goodbye to the largest stake of the “upper crust” of funds monitored by Insider Monkey, valued at close to $157.1 million in stock. Eashwar Krishnan’s fund, Tybourne Capital Management, also sold off its stock, about $86.3 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 14 funds last quarter.

Let’s also examine hedge fund activity in other stocks similar to Starbucks Corporation (NASDAQ:SBUX). These stocks are CVS Health Corporation (NYSE:CVS), Sony Corporation (NYSE:SNE), HDFC Bank Limited (NYSE:HDB), Fidelity National Information Services Inc. (NYSE:FIS), BlackRock, Inc. (NYSE:BLK), Toronto-Dominion Bank (NYSE:TD), and S&P Global Inc. (NYSE:SPGI). This group of stocks’ market caps resemble SBUX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CVS 65 1136206 -6
SNE 28 598881 0
HDB 42 1177218 4
FIS 111 8173639 6
BLK 37 702091 -1
TD 15 155444 -4
SPGI 71 3024689 -2
Average 52.7 2138310 -0.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 52.7 hedge funds with bullish positions and the average amount invested in these stocks was $2138 million. That figure was $2683 million in SBUX’s case. Fidelity National Information Services Inc. (NYSE:FIS) is the most popular stock in this table. On the other hand Toronto-Dominion Bank (NYSE:TD) is the least popular one with only 15 bullish hedge fund positions. Starbucks Corporation (NASDAQ:SBUX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SBUX is 35.1. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 28.2% in 2020 through August 24th but beat the market by 20.6 percentage points. Unfortunately SBUX wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SBUX were disappointed as the stock returned 7.5% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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