Is Starbucks Corporation (SBUX) Worthy of Your Portfolio?

Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Starbucks Corporation (NASDAQ:SBUX).

Is Starbucks Corporation (NASDAQ:SBUX) a sound investment today? Prominent investors are reducing their bets on the stock. The number of bullish hedge fund positions went down by seven recently. However, 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 The Boeing Company (NYSE:BA), Toronto-Dominion Bank (USA) (NYSE:TD), and QUALCOMM, Inc. (NASDAQ:QCOM) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

Now, let’s take a look at the latest action surrounding Starbucks Corporation (NASDAQ:SBUX).

How have hedgies been trading Starbucks Corporation (NASDAQ:SBUX)?

A total of 46 funds tracked by Insider Monkey were bullish on Starbucks Corporation at the end of September, which represents a decline of 13% from one quarter earlier. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Phill Gross and Robert Atchinson’s Adage Capital Management has the number one position in Starbucks Corporation (NASDAQ:SBUX), worth close to $113.5 million, corresponding to 0.3% of its total 13F portfolio. The second largest stake is held by John Overdeck and David Siegel’s Two Sigma Advisors, with a $108.5 million position; 0.5% of its 13F portfolio is allocated to the company. Remaining professional money managers that are bullish comprise Gabriel Plotkin’s Melvin Capital Management, Ryan Pedlow’s Two Creeks Capital Management, and Gabriel Plotkin’s Melvin Capital Management.

Seeing as Starbucks Corporation (NASDAQ:SBUX) has faced falling interest from hedge fund managers, it’s easy to see that there exists a select few funds who were dropping their entire stakes in the third quarter. At the top of the heap, Principal Global Investors’ Columbus Circle Investors dropped the biggest investment of the “upper crust” of funds monitored by Insider Monkey, comprising about $135 million in stock. Ken Griffin’s fund, Citadel Investment Group, also sold off its stock, about $113.7 million worth.

Let’s now take a look at hedge fund activity in other stocks similar to Starbucks Corporation (NASDAQ:SBUX). We will take a look at The Boeing Company (NYSE:BA), Toronto-Dominion Bank (USA) (NYSE:TD), QUALCOMM, Inc. (NASDAQ:QCOM), and Diageo plc (ADR) (NYSE:DEO). This group of stocks’ market values resemble SBUX’s market value.

As you can see these stocks had an average of 35 funds with bullish positions and the average amount invested in these stocks was $1.85 billion. That figure was $1.14 billion in Starbucks’ case. QUALCOMM, Inc. (NASDAQ:QCOM) is the most popular stock in this table. On the other hand Diageo plc (ADR) (NYSE:DEO) is the least popular one with only 16 bullish hedge fund positions. Starbucks Corporation (NASDAQ:SBUX) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard QUALCOMM, Inc. (NASDAQ:QCOM) might be a better candidate to consider a long position.