In this article we are going to use hedge fund sentiment as a tool and determine whether Companhia de Saneamento Básico do Estado de São Paulo – SABESP (NYSE:SBS) 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 SBS a good stock to buy now? SABESP (NYSE:SBS) investors should be aware of an increase in hedge fund interest in recent months. Companhia de Saneamento Básico do Estado de São Paulo – SABESP (NYSE:SBS) was in 11 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 17. Our calculations also showed that SBS 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).
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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 recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. With all of this in mind we’re going to check out the latest hedge fund action surrounding Companhia de Saneamento Básico do Estado de São Paulo – SABESP (NYSE:SBS).
Do Hedge Funds Think SBS Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in SBS over the last 21 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
Among these funds, Impax Asset Management held the most valuable stake in Companhia de Saneamento Básico do Estado de São Paulo – SABESP (NYSE:SBS), which was worth $109.8 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $55 million worth of shares. Covalis Capital, Arrowstreet Capital, and AQR Capital Management 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 Covalis Capital allocated the biggest weight to Companhia de Saneamento Básico do Estado de São Paulo – SABESP (NYSE:SBS), around 4.04% of its 13F portfolio. Impax Asset Management is also relatively very bullish on the stock, earmarking 0.96 percent of its 13F equity portfolio to SBS.
Now, specific money managers were leading the bulls’ herd. Covalis Capital, managed by Zilvinas Mecelis, created the most outsized position in Companhia de Saneamento Básico do Estado de São Paulo – SABESP (NYSE:SBS). Covalis Capital had $9.5 million invested in the company at the end of the quarter. Donald Sussman’s Paloma Partners also initiated a $0.2 million position during the quarter. The following funds were also among the new SBS investors: Dmitry Balyasny’s Balyasny Asset Management and Greg Eisner’s Engineers Gate Manager.
Let’s check out hedge fund activity in other stocks similar to Companhia de Saneamento Básico do Estado de São Paulo – SABESP (NYSE:SBS). These stocks are Lumentum Holdings Inc (NASDAQ:LITE), Rexford Industrial Realty Inc (NYSE:REXR), TopBuild Corp (NYSE:BLD), BigCommerce Holdings, Inc. (NASDAQ:BIGC), TIM Participacoes SA (NYSE:TSU), Flex Ltd. (NASDAQ:FLEX), and Santander Consumer USA Holdings Inc (NYSE:SC). This group of stocks’ market valuations match SBS’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.6 hedge funds with bullish positions and the average amount invested in these stocks was $348 million. That figure was $198 million in SBS’s case. Lumentum Holdings Inc (NASDAQ:LITE) is the most popular stock in this table. On the other hand Rexford Industrial Realty Inc (NYSE:REXR) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Companhia de Saneamento Básico do Estado de São Paulo – SABESP (NYSE:SBS) is even less popular than REXR. Our overall hedge fund sentiment score for SBS is 25.4. 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. Hedge funds dodged a bullet by taking a bearish stance towards SBS. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th but managed to beat the market again by 16.2 percentage points. Unfortunately SBS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); SBS investors were disappointed as the stock returned 6.1% since the end of the third quarter (through 12/8) 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 most of these stocks already outperformed the market so far in 2020.
Disclosure: None. This article was originally published at Insider Monkey.