Is CMG A Good Stock To Buy Now?

In this article we are going to use hedge fund sentiment as a tool and determine whether Chipotle Mexican Grill, Inc. (NYSE:CMG) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is CMG a good stock to buy now? Money managers were getting more bullish. The number of long hedge fund bets rose by 11 recently. Chipotle Mexican Grill, Inc. (NYSE:CMG) was in 52 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 48. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that CMG 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). There were 41 hedge funds in our database with CMG holdings at the end of June.

Video: Watch our video about the top 5 most popular hedge fund stocks.

According to most shareholders, hedge funds are perceived as underperforming, old financial vehicles of years past. While there are greater than 8000 funds in operation at present, Our experts hone in on the aristocrats of this club, around 850 funds. Most estimates calculate that this group of people manage the majority of all hedge funds’ total asset base, and by shadowing their finest stock picks, Insider Monkey has come up with a few investment strategies that have historically outstripped the broader indices. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .

Blair Levinsky of Waratah Capital Advisors

Blair Levinsky of Waratah Capital Advisors

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets. Tesla’s stock price skyrocketed, yet lithium prices are still below their 2019 highs. So, we are checking out this lithium stock right now. We go through lists like the 15 best blue chip stocks to buy 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 we’re going to review the latest hedge fund action surrounding Chipotle Mexican Grill, Inc. (NYSE:CMG).

What does smart money think about Chipotle Mexican Grill, Inc. (NYSE:CMG)?

At the end of the third quarter, a total of 52 of the hedge funds tracked by Insider Monkey were long this stock, a change of 27% from the previous quarter. On the other hand, there were a total of 43 hedge funds with a bullish position in CMG a year ago. So, let’s see 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, Pershing Square, managed by Bill Ackman, holds the biggest position in Chipotle Mexican Grill, Inc. (NYSE:CMG). Pershing Square has a $1.4442 billion position in the stock, comprising 16.4% of its 13F portfolio. The second most bullish fund manager of Renaissance Technologies, with a $1.4166 billion position; the fund has 1.4% of its 13F portfolio invested in the stock. Remaining members of the smart money with similar optimism encompass Ken Griffin’s Citadel Investment Group, Panayotis Takis Sparaggis’s Alkeon Capital Management and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Pershing Square allocated the biggest weight to Chipotle Mexican Grill, Inc. (NYSE:CMG), around 16.37% of its 13F portfolio. Park Presidio Capital is also relatively very bullish on the stock, designating 5.96 percent of its 13F equity portfolio to CMG.

As one would reasonably expect, key money managers were breaking ground themselves. Bridgewater Associates, managed by Ray Dalio, assembled the largest position in Chipotle Mexican Grill, Inc. (NYSE:CMG). Bridgewater Associates had $16.3 million invested in the company at the end of the quarter. Joe DiMenna’s ZWEIG DIMENNA PARTNERS also initiated a $15.6 million position during the quarter. The following funds were also among the new CMG investors: Anthony Joseph Vaccarino’s North Fourth Asset Management, Benjamin A. Smith’s Laurion Capital Management, and Brad Dunkley and Blair Levinsky’s Waratah Capital Advisors.

Let’s check out hedge fund activity in other stocks similar to Chipotle Mexican Grill, Inc. (NYSE:CMG). We will take a look at Enterprise Products Partners L.P. (NYSE:EPD), Sempra Energy (NYSE:SRE), O’Reilly Automotive Inc (NASDAQ:ORLY), Seagen Inc. (NASDAQ:SGEN), ICICI Bank Limited (NYSE:IBN), Centene Corporation (NYSE:CNC), and Metlife Inc (NYSE:MET). This group of stocks’ market caps resemble CMG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EPD 30 178191 0
SRE 32 556176 -3
ORLY 58 2687363 -3
SGEN 28 9631054 -10
IBN 24 306298 4
CNC 58 2843053 -13
MET 36 920750 5
Average 38 2446126 -2.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 38 hedge funds with bullish positions and the average amount invested in these stocks was $2446 million. That figure was $3905 million in CMG’s case. O’Reilly Automotive Inc (NASDAQ:ORLY) is the most popular stock in this table. On the other hand ICICI Bank Limited (NYSE:IBN) is the least popular one with only 24 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 81.2. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd and beat the market again by 16 percentage points. Unfortunately CMG wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CMG were disappointed as the stock returned 4.3% since the end of September (through 12/2) 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 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.