In this article we are going to use hedge fund sentiment as a tool and determine whether StoneCo Ltd. (NASDAQ:STNE) 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 STNE stock a buy or sell? StoneCo Ltd. (NASDAQ:STNE) was in 47 hedge funds’ portfolios at the end of December. The all time high for this statistic was previously 38. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. STNE has seen an increase in enthusiasm from smart money of late. There were 38 hedge funds in our database with STNE positions at the end of the third quarter. Our calculations also showed that STNE isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here).
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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 homepage (or at the end of this article). Keeping this in mind let’s take a gander at the fresh hedge fund action regarding StoneCo Ltd. (NASDAQ:STNE).
Do Hedge Funds Think STNE Is A Good Stock To Buy Now?
Heading into the first quarter of 2021, a total of 47 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 24% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in STNE over the last 22 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Berkshire Hathaway held the most valuable stake in StoneCo Ltd. (NASDAQ:STNE), which was worth $1188.9 million at the end of the fourth quarter. On the second spot was Lone Pine Capital which amassed $534.4 million worth of shares. Egerton Capital Limited, Tybourne Capital Management, and Jericho Capital Asset 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 Prince Street Capital Management allocated the biggest weight to StoneCo Ltd. (NASDAQ:STNE), around 9.45% of its 13F portfolio. Old Well Partners is also relatively very bullish on the stock, setting aside 7.28 percent of its 13F equity portfolio to STNE.
As aggregate interest increased, specific money managers have jumped into StoneCo Ltd. (NASDAQ:STNE) headfirst. Egerton Capital Limited, managed by John Armitage, established the most valuable position in StoneCo Ltd. (NASDAQ:STNE). Egerton Capital Limited had $294.1 million invested in the company at the end of the quarter. Josh Resnick’s Jericho Capital Asset Management also made a $161.1 million investment in the stock during the quarter. The following funds were also among the new STNE investors: Brian Ashford-Russell and Tim Woolley’s Polar Capital, Brandon Haley’s Holocene Advisors, and Philippe Laffont’s Coatue Management.
Let’s also examine hedge fund activity in other stocks similar to StoneCo Ltd. (NASDAQ:STNE). We will take a look at Best Buy Co., Inc. (NYSE:BBY), State Street Corporation (NYSE:STT), Delta Air Lines, Inc. (NYSE:DAL), Suncor Energy Inc. (NYSE:SU), TELUS Corporation (NYSE:TU), McCormick & Company, Incorporated (NYSE:MKC), and The Clorox Company (NYSE:CLX). This group of stocks’ market values are similar to STNE’s market value.
|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 34.4 hedge funds with bullish positions and the average amount invested in these stocks was $991 million. That figure was $3629 million in STNE’s case. Delta Air Lines, Inc. (NYSE:DAL) is the most popular stock in this table. On the other hand TELUS Corporation (NYSE:TU) is the least popular one with only 14 bullish hedge fund positions. StoneCo Ltd. (NASDAQ:STNE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for STNE is 77.5. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 5.3% in 2021 through March 19th and beat the market again by 0.8 percentage points. Unfortunately STNE wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on STNE were disappointed as the stock returned -20.3% since the end of December (through 3/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.