Should I Avoid Starbucks Corporation (SBUX)?

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Starbucks Corporation (NASDAQ:SBUX).

Starbucks Corporation (NASDAQ:SBUX) was in 61 hedge funds’ portfolios at the end of March. The all time high for this statistic is 68. SBUX investors should pay attention to a decrease in enthusiasm from smart money recently. There were 67 hedge funds in our database with SBUX holdings at the end of December. Our calculations also showed that SBUX isn’t among the 30 most popular stocks among hedge funds (click for Q1 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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. 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 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

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At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, advertising technology one of the fastest growing industries right now, so we are checking out stock pitches like this under-the-radar adtech stock that can deliver 10x gains. 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. Keeping this in mind let’s view the new hedge fund action encompassing Starbucks Corporation (NASDAQ:SBUX).

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

Heading into the second quarter of 2021, a total of 61 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from one quarter earlier. On the other hand, there were a total of 68 hedge funds with a bullish position in SBUX a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Fundsmith LLP, managed by Terry Smith, holds the most valuable position in Starbucks Corporation (NASDAQ:SBUX). Fundsmith LLP has a $1.1714 billion position in the stock, comprising 3.7% of its 13F portfolio. The second most bullish fund manager is Fisher Asset Management, managed by Ken Fisher, which holds a $828.2 million position; 0.6% of its 13F portfolio is allocated to the company. Other professional money managers with similar optimism encompass Andy Brown’s Cedar Rock Capital, Gabriel Plotkin’s Melvin Capital Management and Stanley Druckenmiller’s Duquesne Capital. In terms of the portfolio weights assigned to each position Pacifica Capital Investments allocated the biggest weight to Starbucks Corporation (NASDAQ:SBUX), around 15.53% of its 13F portfolio. Cedar Rock Capital is also relatively very bullish on the stock, dishing out 14.01 percent of its 13F equity portfolio to SBUX.

Because Starbucks Corporation (NASDAQ:SBUX) has faced bearish sentiment from hedge fund managers, we can see that there is a sect of money managers who were dropping their positions entirely in the first quarter. Intriguingly, Bill Ackman’s Pershing Square cut the largest investment of the “upper crust” of funds watched by Insider Monkey, comprising close to $1077.3 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also dropped its stock, about $66.2 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 6 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Starbucks Corporation (NASDAQ:SBUX) but similarly valued. We will take a look at Caterpillar Inc. (NYSE:CAT), Anheuser-Busch InBev SA/NV (NYSE:BUD), Rio Tinto Group (NYSE:RIO), Sanofi (NASDAQ:SNY), The Charles Schwab Corporation (NYSE:SCHW), Applied Materials, Inc. (NASDAQ:AMAT), and TotalEnergies SE  (NYSE:TOT). This group of stocks’ market values resemble SBUX’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CAT 53 4956227 0
BUD 18 979916 0
RIO 25 1596509 -1
SNY 15 1142178 0
SCHW 76 4905041 15
AMAT 78 5711193 17
TOT 17 1163601 3
Average 40.3 2922095 4.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.3 hedge funds with bullish positions and the average amount invested in these stocks was $2922 million. That figure was $4442 million in SBUX’s case. Applied Materials, Inc. (NASDAQ:AMAT) is the most popular stock in this table. On the other hand Sanofi (NASDAQ:SNY) is the least popular one with only 15 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. Our overall hedge fund sentiment score for SBUX is 62.4. 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. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.2% in 2021 through June 11th and beat the market again by 3.3 percentage points. Unfortunately SBUX wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on SBUX were disappointed as the stock returned 3.4% since the end of March (through 6/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 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.