Were Hedge Funds Right About Starbucks Corporation (SBUX)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Starbucks Corporation (NASDAQ:SBUX) and determine whether hedge funds skillfully traded this stock.

Starbucks Corporation (NASDAQ:SBUX) shareholders have witnessed a decrease in support from the world’s most elite money managers of late. Starbucks Corporation (NASDAQ:SBUX) was in 58 hedge funds’ portfolios at the end of September. The all time high for this statistic is 68. Our calculations also showed that SBUX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV 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. Now let’s take a look at the recent hedge fund action regarding Starbucks Corporation (NASDAQ:SBUX).

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

At the end of September, a total of 58 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SBUX over the last 25 quarters. So, let’s see 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 number one position in Starbucks Corporation (NASDAQ:SBUX). Fundsmith LLP has a $1.1853 billion position in the stock, comprising 3.3% of its 13F portfolio. Coming in second is Ken Fisher of Fisher Asset Management, with a $919.9 million position; 0.6% of its 13F portfolio is allocated to the stock. Remaining members of the smart money with similar optimism comprise Andy Brown’s Cedar Rock Capital, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Pacifica Capital Investments allocated the biggest weight to Starbucks Corporation (NASDAQ:SBUX), around 14.43% of its 13F portfolio. Cedar Rock Capital is also relatively very bullish on the stock, designating 13.05 percent of its 13F equity portfolio to SBUX.

Due to the fact that Starbucks Corporation (NASDAQ:SBUX) has experienced declining sentiment from hedge fund managers, it’s safe to say that there lies a certain “tier” of fund managers who sold off their full holdings heading into Q4. Interestingly, Gabriel Plotkin’s Melvin Capital Management cut the biggest investment of all the hedgies tracked by Insider Monkey, worth an estimated $111.8 million in stock, and Steven Boyd’s Armistice Capital was right behind this move, as the fund said goodbye to about $26.8 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 5 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Starbucks Corporation (NASDAQ:SBUX) but similarly valued. These stocks are Raytheon Technologies Corp (NYSE:RTX), The Boeing Company (NYSE:BA), Union Pacific Corporation (NYSE:UNP), BlackRock, Inc. (NYSE:BLK), The Goldman Sachs Group, Inc. (NYSE:GS), TotalEnergies SE (NYSE:TTE), and Advanced Micro Devices, Inc. (NASDAQ:AMD). All of these stocks’ market caps resemble SBUX’s market cap.

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As you can see these stocks had an average of 51.4 hedge funds with bullish positions and the average amount invested in these stocks was $3110 million. That figure was $4807 million in SBUX’s case. The Goldman Sachs Group, Inc. (NYSE:GS) is the most popular stock in this table. On the other hand TotalEnergies SE (NYSE:TTE) is the least popular one with only 16 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 61.8. 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 29.6% in 2021 and beat the market again by 3.6 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 -10.5% since the end of September (through 1/31) 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 all of these stocks already outperformed the market since 2019.

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