Here is What Hedge Funds Think About Natura &Co Holding S.A. (NTCO)

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 817 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Natura &Co Holding S.A. (NYSE:NTCO).

Is Natura &Co Holding S.A. (NYSE:NTCO) an excellent investment today? Prominent investors were selling. The number of long hedge fund bets decreased by 1 lately. Natura &Co Holding S.A. (NYSE:NTCO) was in 4 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 8. Our calculations also showed that NTCO isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

James Mitarotonda Barington Capital

James A. Mitarotonda of Barington Capital Group

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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. 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. 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 website. Keeping this in mind let’s take a peek at the latest hedge fund action surrounding Natura &Co Holding S.A. (NYSE:NTCO).

Hedge fund activity in Natura &Co Holding S.A. (NYSE:NTCO)

Heading into the fourth quarter of 2020, a total of 4 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from the previous quarter. On the other hand, there were a total of 0 hedge funds with a bullish position in NTCO a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, holds the biggest position in Natura &Co Holding S.A. (NYSE:NTCO). Renaissance Technologies has a $64 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is Millennium Management, led by Israel Englander, holding a $27.8 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Some other professional money managers that are bullish comprise James A. Mitarotonda’s Barington Capital Group, Frederick DiSanto’s Ancora Advisors and . In terms of the portfolio weights assigned to each position Barington Capital Group allocated the biggest weight to Natura &Co Holding S.A. (NYSE:NTCO), around 11.2% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, dishing out 0.06 percent of its 13F equity portfolio to NTCO.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Citadel Investment Group. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified NTCO as a viable investment and initiated a position in the stock.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Natura &Co Holding S.A. (NYSE:NTCO) but similarly valued. These stocks are The Liberty SiriusXM Group (NASDAQ:LSXMA), Cable One Inc (NYSE:CABO), Hasbro, Inc. (NASDAQ:HAS), W.P. Carey Inc. (NYSE:WPC), Cognex Corporation (NASDAQ:CGNX), NovoCure Limited (NASDAQ:NVCR), and Charles River Laboratories International Inc. (NYSE:CRL). All of these stocks’ market caps resemble NTCO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LSXMA 42 1294451 -4
CABO 23 686716 -1
HAS 31 372962 8
WPC 23 140774 0
CGNX 28 213078 2
NVCR 22 544665 -5
CRL 36 1241143 -5
Average 29.3 641970 -0.7

View table here if you experience formatting issues.

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 $642 million. That figure was $98 million in NTCO’s case. The Liberty SiriusXM Group (NASDAQ:LSXMA) is the most popular stock in this table. On the other hand NovoCure Limited (NASDAQ:NVCR) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Natura &Co Holding S.A. (NYSE:NTCO) is even less popular than NVCR. Our overall hedge fund sentiment score for NTCO is 19. 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. Hedge funds dodged a bullet by taking a bearish stance towards NTCO. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th but managed to beat the market again by 16.1 percentage points. Unfortunately NTCO wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); NTCO investors were disappointed as the stock returned 4.1% since the end of the third quarter (through 11/27) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

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