Should You Buy XP Inc. (XP)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We at Insider Monkey have gone over 835 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article, we look at what those funds think of 0 based on that data.

0 investors should pay attention to an increase in support from the world’s most elite money managers recently. XP was in 28 hedge funds’ portfolios at the end of December. There were 0 hedge funds in our database with XP positions at the end of the previous quarter. Our calculations also showed that XP isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.


Lee Ainslie of Maverick Capital

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s view the fresh hedge fund action surrounding 0.

How are hedge funds trading XP Inc. (NASDAQ:XP)?

At the end of the fourth quarter, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 28 from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in XP over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in XP Inc. (NASDAQ:XP) was held by Maverick Capital, which reported holding $66.6 million worth of stock at the end of September. It was followed by Lone Pine Capital with a $46.2 million position. Other investors bullish on the company included Adage Capital Management, Samlyn Capital, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Key Square Capital Management allocated the biggest weight to XP Inc. (NASDAQ:XP), around 10.2% of its 13F portfolio. Element Capital Management is also relatively very bullish on the stock, designating 2.67 percent of its 13F equity portfolio to XP.

As aggregate interest increased, some big names have jumped into XP Inc. (NASDAQ:XP) headfirst. Maverick Capital, managed by Lee Ainslie, initiated the biggest position in XP Inc. (NASDAQ:XP). Maverick Capital had $66.6 million invested in the company at the end of the quarter. Lone Pine Capital also initiated a $46.2 million position during the quarter. The other funds with new positions in the stock are Phill Gross and Robert Atchinson’s Adage Capital Management, Robert Pohly’s Samlyn Capital, and Ken Griffin’s Citadel Investment Group.

Let’s check out hedge fund activity in other stocks similar to XP Inc. (NASDAQ:XP). These stocks are Fastenal Company (NASDAQ:FAST), Ball Corporation (NYSE:BLL), Copart, Inc. (NASDAQ:CPRT), and Ameriprise Financial, Inc. (NYSE:AMP). This group of stocks’ market valuations resemble XP’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FAST 33 834608 3
BLL 44 679601 10
CPRT 46 984642 3
AMP 37 1122580 8
Average 40 905358 6

View table here if you experience formatting issues.

As you can see these stocks had an average of 40 hedge funds with bullish positions and the average amount invested in these stocks was $905 million. That figure was $398 million in XP’s case. Copart, Inc. (NASDAQ:CPRT) is the most popular stock in this table. On the other hand Fastenal Company (NASDAQ:FAST) is the least popular one with only 33 bullish hedge fund positions. Compared to these stocks XP Inc. (NASDAQ:XP) is even less popular than FAST. Hedge funds dodged a bullet by taking a bearish stance towards XP. 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 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but managed to beat the market by 3.2 percentage points. Unfortunately XP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); XP investors were disappointed as the stock returned -51.9% during the same time period 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 Q1.

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