Was The Smart Money Right About StoneCo Ltd. (STNE)?

Is StoneCo Ltd. (NASDAQ:STNE) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

StoneCo Ltd. (NASDAQ:STNE) has seen an increase in support from the world’s most elite money managers recently. StoneCo Ltd. (NASDAQ:STNE) was in 47 hedge funds’ portfolios at the end of the fourth quarter of 2020. 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. Our calculations also showed that STNE isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

If you’d ask most shareholders, hedge funds are perceived as worthless, old investment tools of years past. While there are more than 8000 funds with their doors open at present, Our experts look at the bigwigs of this group, around 850 funds. It is estimated that this group of investors preside over bulk of the hedge fund industry’s total asset base, and by observing their best stock picks, Insider Monkey has uncovered a few investment strategies that have historically beaten the market. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Also, our monthly newsletter’s portfolio of long stock picks returned 197% since March 2017 (through March 2021) and beat the S&P 500 Index by 124 percentage points. You can download a sample issue of this newsletter on our website .

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. Now we’re going to go over the new hedge fund action encompassing StoneCo Ltd. (NASDAQ:STNE).

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

At fourth quarter’s end, a total of 47 of the hedge funds tracked by Insider Monkey held long positions in 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. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

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, key hedge funds have been driving this bullishness. Egerton Capital Limited, managed by John Armitage, initiated the most outsized 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 other funds with new positions in the stock are 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 – not necessarily in the same industry as StoneCo Ltd. (NASDAQ:STNE) but similarly valued. These stocks are 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 valuations are similar to STNE’s market valuation.

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 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and beat the market again by 1.6 percentage points. Unfortunately STNE wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on STNE were disappointed as the stock returned -23% since the end of December (through 4/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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