Is XP A Good Stock To Buy Now?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards XP Inc. (NASDAQ:XP).

Is XP a good stock to buy now? XP Inc. (NASDAQ:XP) was in 20 hedge funds’ portfolios at the end of September. The all time high for this statistic is 28. XP shareholders have witnessed a decrease in support from the world’s most elite money managers of late. There were 21 hedge funds in our database with XP positions at the end of the second quarter. Our calculations also showed that XP 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.

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 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 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.

Robert Pohly of Samlyn Capital

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 take a peek at the key hedge fund action regarding XP Inc. (NASDAQ:XP).

Do Hedge Funds Think XP Is A Good Stock To Buy Now?

At the end of September, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the previous quarter. By comparison, 0 hedge funds held shares or bullish call options in XP a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is XP A Good Stock To Buy?

The largest stake in XP Inc. (NASDAQ:XP) was held by Alkeon Capital Management, which reported holding $177.8 million worth of stock at the end of September. It was followed by Maverick Capital with a $79.9 million position. Other investors bullish on the company included Adage Capital Management, Arrowstreet Capital, and Driehaus Capital. In terms of the portfolio weights assigned to each position Maverick Capital allocated the biggest weight to XP Inc. (NASDAQ:XP), around 1.48% of its 13F portfolio. ThornTree Capital Partners is also relatively very bullish on the stock, setting aside 1.43 percent of its 13F equity portfolio to XP.

Since XP Inc. (NASDAQ:XP) has faced falling interest from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of fund managers who sold off their entire stakes heading into Q4. At the top of the heap, Robert Pohly’s Samlyn Capital dumped the largest position of all the hedgies tracked by Insider Monkey, valued at close to $40.2 million in stock, and Steve Cohen’s Point72 Asset Management was right behind this move, as the fund sold off about $9.6 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 1 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as XP Inc. (NASDAQ:XP) but similarly valued. These stocks are Welltower Inc. (NYSE:WELL), Yandex NV (NASDAQ:YNDX), AMETEK, Inc. (NYSE:AME), Freeport-McMoRan Inc. (NYSE:FCX), Phillips 66 (NYSE:PSX), TELUS Corporation (NYSE:TU), and Nutrien Ltd. (NYSE:NTR). This group of stocks’ market valuations are closest to XP’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WELL 25 603202 -2
YNDX 33 1588423 -11
AME 37 919920 -3
FCX 57 1578989 4
PSX 27 203563 -15
TU 12 163923 -3
NTR 26 550380 4
Average 31 801200 -3.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 31 hedge funds with bullish positions and the average amount invested in these stocks was $801 million. That figure was $448 million in XP’s case. Freeport-McMoRan Inc. (NYSE:FCX) is the most popular stock in this table. On the other hand TELUS Corporation (NYSE:TU) is the least popular one with only 12 bullish hedge fund positions. XP Inc. (NASDAQ:XP) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for XP is 34.3. 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 negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and surpassed the market again by 15.8 percentage points. Unfortunately XP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); XP investors were disappointed as the stock returned -11.9% since the end of September (through 12/14) 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 in 2020.

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