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Is Itau Unibanco Holding SA (ADR) (ITUB) A Good Stock To Buy?

Before we spend days researching a stock idea we’d like to take a look at how hedge funds and billionaire investors recently traded that stock. S&P 500 Index returned about 5.2% during the last 12 months ending October 30, 2015. Less than 49% of the stocks in the index outperformed the index. This means you (or a monkey throwing a dart) have less than an even chance of beating the market by randomly picking a stock. On the other hand, the top 30 S&P 500 stocks among hedge funds at the end of September 2014 had an average return of 9.5% during the same period. Sixty three percent of these 30 stocks outperformed the market. Hedge funds had bad stock picks like everyone else. Micron, which lost 50% over this period, was one of hedge funds’ 30 favorite S&P 500 stocks. Anadarko Petroleum was another failed stock pick which lost more than 26%. So, taking cues from hedge funds isn’t a foolproof strategy, but it seems to work on average. In this article, we will take a look at what hedge funds think about Itau Unibanco Holding SA (ADR) (NYSE:ITUB).

Itau Unibanco Holding SA (ADR) (NYSE:ITUB) has experienced a decrease in activity from the world’s largest hedge funds recently. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as EOG Resources Inc (NYSE:EOG), Monsanto Company (NYSE:MON), and Kimberly Clark Corp (NYSE:KMB) to gather more data points.

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Keeping this in mind, we’re going to take a look at the recent action surrounding Itau Unibanco Holding SA (ADR) (NYSE:ITUB).

Hedge fund activity in Itau Unibanco Holding SA (ADR) (NYSE:ITUB)

At the end of the third quarter, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -22% from the previous quarter. With hedgies’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Cliff Asness’ AQR Capital Management has the most valuable position in Itau Unibanco Holding SA (ADR) (NYSE:ITUB), worth close to $53.1 million, comprising 0.1% of its total 13F portfolio. The second most bullish fund manager is Renaissance Technologies, managed by Jim Simons, which holds a $45 million position; 0.1% of its 13F portfolio is allocated to the stock. Some other professional money managers that hold long positions contain Howard Marks’s Oaktree Capital Management,  D E Shaw and William B. Gray’s Orbis Investment Management.

Due to the fact that Itau Unibanco Holding SA (ADR) (NYSE:ITUB) has witnessed bearish sentiment from hedge fund managers, logic holds that there lies a certain “tier” of money managers who were dropping their full holdings heading into Q4. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dropped the biggest position of all the hedgies monitored by Insider Monkey, totaling close to $45.5 million in stock, and Orlando Muyshondt’s Tyrian Investments was right behind this move, as the fund sold off about $19 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 5 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks similar to Itau Unibanco Holding SA (ADR) (NYSE:ITUB). These stocks are EOG Resources Inc (NYSE:EOG), Monsanto Company (NYSE:MON), Kimberly Clark Corp (NYSE:KMB), and Caterpillar Inc. (NYSE:CAT). This group of stocks’ market values are closest to ITUB’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EOG 60 1539301 3
MON 60 3048446 -4
KMB 34 1189525 3
CAT 40 1236703 10

As you can see these stocks had an average of 48.5 hedge funds with bullish positions and the average amount invested in these stocks was $1753 million. That figure was $264 million in ITUB’s case. EOG Resources Inc (NYSE:EOG) is the most popular stock in this table. On the other hand Kimberly Clark Corp (NYSE:KMB) is the least popular one with only 34 bullish hedge fund positions. Compared to these stocks Itau Unibanco Holding SA (ADR) (NYSE:ITUB) is even less popular than KMB. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

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