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Is SBS A Good Stock To Buy?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 821 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of March 31st, 2020. What do these smart investors think about Companhia de Saneamento Basico do Estado de Sao Paulo – SABESP (NYSE:SBS)?

Companhia de Saneamento Basico do Estado de Sao Paulo – SABESP (NYSE:SBS) was in 8 hedge funds’ portfolios at the end of March. SBS has seen a decrease in support from the world’s most elite money managers in recent months. There were 12 hedge funds in our database with SBS holdings at the end of the previous quarter. Our calculations also showed that SBS isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s view the fresh hedge fund action regarding Companhia de Saneamento Basico do Estado de Sao Paulo – SABESP (NYSE:SBS).

What does smart money think about Companhia de Saneamento Basico do Estado de Sao Paulo – SABESP (NYSE:SBS)?

At Q1’s end, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -33% from the fourth quarter of 2019. On the other hand, there were a total of 16 hedge funds with a bullish position in SBS a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

Among these funds, Impax Asset Management held the most valuable stake in Companhia de Saneamento Basico do Estado de Sao Paulo – SABESP (NYSE:SBS), which was worth $70.8 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $67.6 million worth of shares. AQR Capital Management, Arrowstreet Capital, and Two Sigma Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Impax Asset Management allocated the biggest weight to Companhia de Saneamento Basico do Estado de Sao Paulo – SABESP (NYSE:SBS), around 0.94% of its 13F portfolio. AQR Capital Management is also relatively very bullish on the stock, setting aside 0.08 percent of its 13F equity portfolio to SBS.

Seeing as Companhia de Saneamento Basico do Estado de Sao Paulo – SABESP (NYSE:SBS) has faced bearish sentiment from the entirety of the hedge funds we track, logic holds that there were a few hedge funds that elected to cut their full holdings in the first quarter. Interestingly, Paul Marshall and Ian Wace’s Marshall Wace LLP sold off the largest investment of the “upper crust” of funds tracked by Insider Monkey, worth an estimated $1 million in stock, and Matt Diserio and Disque Deane Jr.’s Water Asset Management was right behind this move, as the fund cut about $0.8 million worth. These moves are interesting, as total hedge fund interest fell by 4 funds in the first quarter.

Let’s go over hedge fund activity in other stocks similar to Companhia de Saneamento Basico do Estado de Sao Paulo – SABESP (NYSE:SBS). These stocks are BorgWarner Inc. (NYSE:BWA), Canopy Growth Corporation (NYSE:CGC), Wayfair Inc (NYSE:W), and Repligen Corporation (NASDAQ:RGEN). This group of stocks’ market caps match SBS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BWA 30 482313 3
CGC 10 30232 -4
W 34 1043243 1
RGEN 21 321987 -2
Average 23.75 469444 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $469 million. That figure was $218 million in SBS’s case. Wayfair Inc (NYSE:W) is the most popular stock in this table. On the other hand Canopy Growth Corporation (NYSE:CGC) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Companhia de Saneamento Basico do Estado de Sao Paulo – SABESP (NYSE:SBS) is even less popular than CGC. Hedge funds clearly dropped the ball on SBS as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 12.2% in 2020 through June 17th and still beat the market by 14.8 percentage points. A small number of hedge funds were also right about betting on SBS as the stock returned 49.5% so far in the second quarter and outperformed the market by an even larger margin.

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