Here is What Hedge Funds Think About Chipotle Mexican Grill, Inc. (CMG)

A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended June 30th, so let’s proceed with the discussion of the hedge fund sentiment on Chipotle Mexican Grill, Inc. (NYSE:CMG).

Is Chipotle Mexican Grill, Inc. (NYSE:CMG) a buy here? Investors who are in the know were in a pessimistic mood. The number of long hedge fund bets dropped by 6 lately. Chipotle Mexican Grill, Inc. (NYSE:CMG) was in 35 hedge funds’ portfolios at the end of June. The all time high for this statistic is 52. Our calculations also showed that CMG isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 41 hedge funds in our database with CMG positions at the end of the first quarter.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 79 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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. You can subscribe to our free daily newsletter on our homepage. Now we’re going to take a look at the key hedge fund action surrounding Chipotle Mexican Grill, Inc. (NYSE:CMG).

Do Hedge Funds Think CMG Is A Good Stock To Buy Now?

Heading into the third quarter of 2021, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from one quarter earlier. By comparison, 41 hedge funds held shares or bullish call options in CMG a year ago. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

More specifically, Pershing Square was the largest shareholder of Chipotle Mexican Grill, Inc. (NYSE:CMG), with a stake worth $1683.9 million reported as of the end of June. Trailing Pershing Square was Citadel Investment Group, which amassed a stake valued at $673 million. Alkeon Capital Management, D E Shaw, and D1 Capital Partners 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 Pershing Square allocated the biggest weight to Chipotle Mexican Grill, Inc. (NYSE:CMG), around 15.72% of its 13F portfolio. Emerson Point Capital is also relatively very bullish on the stock, earmarking 8.89 percent of its 13F equity portfolio to CMG.

Judging by the fact that Chipotle Mexican Grill, Inc. (NYSE:CMG) has faced declining sentiment from hedge fund managers, logic holds that there was a specific group of money managers that decided to sell off their entire stakes heading into Q3. It’s worth mentioning that Michael Gelband’s ExodusPoint Capital said goodbye to the biggest investment of all the hedgies monitored by Insider Monkey, worth about $4.2 million in stock. Benjamin A. Smith’s fund, Laurion Capital Management, also dumped its stock, about $3.8 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 6 funds heading into Q3.

Let’s now take a look at hedge fund activity in other stocks similar to Chipotle Mexican Grill, Inc. (NYSE:CMG). These stocks are Eni SpA (NYSE:E), Exelon Corporation (NYSE:EXC), Canadian Natural Resources Limited (NYSE:CNQ), Simon Property Group, Inc (NYSE:SPG), Wipro Limited (NYSE:WIT), Aptiv PLC (NYSE:APTV), and Centene Corporation (NYSE:CNC). This group of stocks’ market caps are closest to CMG’s market cap.

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As you can see these stocks had an average of 29.3 hedge funds with bullish positions and the average amount invested in these stocks was $1113 million. That figure was $3205 million in CMG’s case. Centene Corporation (NYSE:CNC) is the most popular stock in this table. On the other hand Eni SpA (NYSE:E) is the least popular one with only 3 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. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 21.8% in 2021 through October 11th and still beat the market by 4.4 percentage points. Hedge funds were also right about betting on CMG as the stock returned 15.1% since the end of Q2 (through 10/11) 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.

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