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Were Hedge Funds Right About Selling Monster Beverage Corp (MNST)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Monster Beverage Corp (NASDAQ:MNST) and determine whether hedge funds had an edge regarding this stock.

Is Monster Beverage Corp (NASDAQ:MNST) a superb investment today? Hedge funds were taking a pessimistic view. The number of long hedge fund bets retreated by 2 in recent months. Our calculations also showed that MNST isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 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.

Aaron Cowen Suvretta Capital

Aaron Cowen of Suvretta Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. 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 gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s analyze the key hedge fund action regarding Monster Beverage Corp (NASDAQ:MNST).

What have hedge funds been doing with Monster Beverage Corp (NASDAQ:MNST)?

Heading into the second quarter of 2020, a total of 43 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the previous quarter. By comparison, 33 hedge funds held shares or bullish call options in MNST a year ago. With hedge funds’ capital changing hands, there exists a few notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies has the most valuable position in Monster Beverage Corp (NASDAQ:MNST), worth close to $765.5 million, accounting for 0.7% of its total 13F portfolio. Sitting at the No. 2 spot is Neal C. Bradsher of Broadwood Capital, with a $262 million position; 30.6% of its 13F portfolio is allocated to the company. Other professional money managers that are bullish encompass Cliff Asness’s AQR Capital Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Broadwood Capital allocated the biggest weight to Monster Beverage Corp (NASDAQ:MNST), around 30.62% of its 13F portfolio. Incline Global Management is also relatively very bullish on the stock, earmarking 5.06 percent of its 13F equity portfolio to MNST.

Since Monster Beverage Corp (NASDAQ:MNST) has witnessed a decline in interest from the entirety of the hedge funds we track, logic holds that there was a specific group of hedge funds that slashed their full holdings heading into Q4. Interestingly, Andreas Halvorsen’s Viking Global cut the largest stake of the 750 funds followed by Insider Monkey, comprising about $822.6 million in stock, and Ricky Sandler’s Eminence Capital was right behind this move, as the fund dropped about $144.3 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 2 funds heading into Q4.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Monster Beverage Corp (NASDAQ:MNST) but similarly valued. These stocks are The Kraft Heinz Company (NASDAQ:KHC), General Motors Company (NYSE:GM), Workday Inc (NASDAQ:WDAY), and Canadian Pacific Railway Limited (NYSE:CP). This group of stocks’ market valuations match MNST’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KHC 39 8314956 5
GM 53 3020405 -22
WDAY 58 2259501 3
CP 32 1568644 3
Average 45.5 3790877 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 45.5 hedge funds with bullish positions and the average amount invested in these stocks was $3791 million. That figure was $1844 million in MNST’s case. Workday Inc (NASDAQ:WDAY) is the most popular stock in this table. On the other hand Canadian Pacific Railway Limited (NYSE:CP) is the least popular one with only 32 bullish hedge fund positions. Monster Beverage Corp (NASDAQ:MNST) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on MNST, though not to the same extent, as the stock returned 23.2% during the second quarter and outperformed the market.

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