Is Rio Tinto Group (RIO) Stock A Buy?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Rio Tinto Group (NYSE:RIO) based on that data and determine whether they were really smart about the stock.

Hedge fund interest in Rio Tinto Group (NYSE:RIO) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that RIO isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). 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 Crown Castle International Corp. (REIT) (NYSE:CCI), Cigna Corporation (NYSE:CI), and Prologis Inc (NYSE:PLD) to gather more data points. Our calculations also showed that RIO isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

At the moment there are tons of metrics investors have at their disposal to size up publicly traded companies. A couple of the less known metrics are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the best picks of the elite money managers can outclass the market by a very impressive margin (see the details here).

Donald Sussman Paloma Partners

Donald Sussman of Paloma Partners

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 are checking out this junior gold mining stock and 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 to get excerpts of these letters in your inbox. With all of this in mind let’s analyze the fresh hedge fund action encompassing Rio Tinto Group (NYSE:RIO).

How are hedge funds trading Rio Tinto Group (NYSE:RIO)?

Heading into the third quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 24 hedge funds with a bullish position in RIO a year ago. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

The largest stake in Rio Tinto Group (NYSE:RIO) was held by Fisher Asset Management, which reported holding $647.6 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $327.7 million position. Other investors bullish on the company included Renaissance Technologies, Impala Asset Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Impala Asset Management allocated the biggest weight to Rio Tinto Group (NYSE:RIO), around 10% of its 13F portfolio. Pittencrieff Partners – Gabalex Capital is also relatively very bullish on the stock, setting aside 5.31 percent of its 13F equity portfolio to RIO.

Since Rio Tinto Group (NYSE:RIO) has faced bearish sentiment from the smart money, we can see that there exists a select few hedge funds who were dropping their full holdings last quarter. It’s worth mentioning that Todd J. Kantor’s Encompass Capital Advisors cut the largest investment of all the hedgies monitored by Insider Monkey, valued at about $18.2 million in stock, and D. E. Shaw’s D E Shaw was right behind this move, as the fund dropped about $16.5 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Rio Tinto Group (NYSE:RIO) but similarly valued. These stocks are Crown Castle International Corp. (REIT) (NYSE:CCI), Cigna Corporation (NYSE:CI), Prologis Inc (NYSE:PLD), Caterpillar Inc. (NYSE:CAT), Dominion Energy Inc. (NYSE:D), The Goldman Sachs Group, Inc. (NYSE:GS), and The Estee Lauder Companies Inc (NYSE:EL). This group of stocks’ market valuations match RIO’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CCI 43 1988345 3
CI 72 2871074 -2
PLD 35 433481 -5
CAT 39 2667687 5
D 33 366229 -1
GS 69 3543027 -5
EL 46 1197830 2
Average 48.1 1866810 -0.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 48.1 hedge funds with bullish positions and the average amount invested in these stocks was $1867 million. That figure was $1324 million in RIO’s case. Cigna Corporation (NYSE:CI) is the most popular stock in this table. On the other hand Dominion Energy Inc. (NYSE:D) is the least popular one with only 33 bullish hedge fund positions. Compared to these stocks Rio Tinto Group (NYSE:RIO) is even less popular than D. Our overall hedge fund sentiment score for RIO is 29. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of the third quarter but managed to beat the market by 19.3 percentage points. A small number of hedge funds were also right about betting on RIO, though not to the same extent, as the stock returned 10.1% in Q3 and outperformed the market as well.

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