Is Companhia Brasileira de Distrib. (CBD) Going To Burn These Hedge Funds ?

We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds’ top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Companhia Brasileira de Distrib. (NYSE:CBD).

Companhia Brasileira de Distrib. (NYSE:CBD) has experienced a decrease in hedge fund sentiment of late. Our calculations also showed that CBD 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Paul Marshall Marshall Wace

Unlike former hedge manager, Dr. Steve Sjuggerud, 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 latest hedge fund action regarding Companhia Brasileira de Distrib. (NYSE:CBD).

What does smart money think about Companhia Brasileira de Distrib. (NYSE:CBD)?

Heading into the third quarter of 2019, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in CBD over the last 16 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).


The largest stake in Companhia Brasileira de Distrib. (NYSE:CBD) was held by Fisher Asset Management, which reported holding $28.4 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $8.7 million position. Other investors bullish on the company included Marshall Wace LLP, Indus Capital, and Millennium Management.

Because Companhia Brasileira de Distrib. (NYSE:CBD) has witnessed bearish sentiment from hedge fund managers, we can see that there lies a certain “tier” of money managers who were dropping their positions entirely in the second quarter. Interestingly, Ken Heebner’s Capital Growth Management cut the largest position of the “upper crust” of funds watched by Insider Monkey, valued at an estimated $29.3 million in stock, and David Costen Haley’s HBK Investments was right behind this move, as the fund sold off about $2.1 million worth. These transactions are important to note, as total hedge fund interest dropped by 1 funds in the second quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Companhia Brasileira de Distrib. (NYSE:CBD) but similarly valued. These stocks are Jones Lang LaSalle Inc (NYSE:JLL), Encompass Health Corporation (NYSE:EHC), Sabre Corporation (NASDAQ:SABR), and Owens Corning (NYSE:OC). All of these stocks’ market caps resemble CBD’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
JLL 23 984740 0
EHC 23 507276 -1
SABR 12 140283 -9
OC 34 1483283 7
Average 23 778896 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $779 million. That figure was $62 million in CBD’s case. Owens Corning (NYSE:OC) is the most popular stock in this table. On the other hand Sabre Corporation (NASDAQ:SABR) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Companhia Brasileira de Distrib. (NYSE:CBD) is even less popular than SABR. Hedge funds dodged a bullet by taking a bearish stance towards CBD. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CBD wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); CBD investors were disappointed as the stock returned -21.3% during the third quarter 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 in 2019.

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