Were Hedge Funds Right About StoneCo Ltd. (STNE)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the third quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 6 years and analyze what the smart money thinks of StoneCo Ltd. (NASDAQ:STNE) based on that data and determine whether they were really smart about the stock.

StoneCo Ltd. (NASDAQ:STNE) investors should pay attention to a decrease in activity from the world’s largest hedge funds in recent months. StoneCo Ltd. (NASDAQ:STNE) was in 37 hedge funds’ portfolios at the end of September. The all time high for this statistic is 47. There were 44 hedge funds in our database with STNE holdings at the end of June. Our calculations also showed that STNE 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 we’re going to take a glance at the fresh hedge fund action encompassing StoneCo Ltd. (NASDAQ:STNE).

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

At Q3’s end, a total of 37 of the hedge funds tracked by Insider Monkey were long this stock, a change of -16% from the second quarter of 2021. By comparison, 38 hedge funds held shares or bullish call options in STNE 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.

More specifically, Lone Pine Capital was the largest shareholder of StoneCo Ltd. (NASDAQ:STNE), with a stake worth $524 million reported as of the end of September. Trailing Lone Pine Capital was D1 Capital Partners, which amassed a stake valued at $392.5 million. Berkshire Hathaway, Tybourne Capital Management, and Echo Street Capital 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 Element Capital Management allocated the biggest weight to StoneCo Ltd. (NASDAQ:STNE), around 8.13% of its 13F portfolio. Incline Global Management is also relatively very bullish on the stock, designating 5.97 percent of its 13F equity portfolio to STNE.

Seeing as StoneCo Ltd. (NASDAQ:STNE) has faced declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there is a sect of fund managers that decided to sell off their entire stakes in the third quarter. It’s worth mentioning that John Armitage’s Egerton Capital Limited sold off the largest stake of all the hedgies watched by Insider Monkey, valued at about $192.5 million in stock. Josh Donfeld and David Rogers’s fund, Castle Hook Partners, also dropped its stock, about $75.1 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 7 funds in the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to StoneCo Ltd. (NASDAQ:STNE). These stocks are Builders FirstSource, Inc. (NYSE:BLDR), American Financial Group, Inc. (NYSE:AFG), Henry Schein, Inc. (NASDAQ:HSIC), Dicks Sporting Goods Inc (NYSE:DKS), GDS Holdings Limited (NASDAQ:GDS), Cemex SAB de CV (NYSE:CX), and Ozon Holdings PLC (NASDAQ:OZON). All of these stocks’ market caps are similar to STNE’s market cap.

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As you can see these stocks had an average of 28.4 hedge funds with bullish positions and the average amount invested in these stocks was $1030 million. That figure was $2216 million in STNE’s case. Builders FirstSource, Inc. (NYSE:BLDR) is the most popular stock in this table. On the other hand Ozon Holdings PLC (NASDAQ:OZON) is the least popular one with only 13 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 51.6. 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, STNE wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on STNE were disappointed as the stock returned -55.1% 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.