Chipotle Mexican Grill, Inc. (CMG): Hedge Funds Are Bullish and Insiders Are Bearish, What Should You Do?

Is Chipotle Mexican Grill, Inc. (NYSE:CMG) a superb investment right now? Prominent investors are getting more bullish. The number of long hedge fund bets advanced by 1 lately.

If you’d ask most traders, hedge funds are perceived as unimportant, old financial vehicles of years past. While there are greater than 8000 funds trading at present, we at Insider Monkey look at the top tier of this club, around 450 funds. It is widely believed that this group controls most of the smart money’s total asset base, and by paying attention to their best picks, we have formulated a few investment strategies that have historically outstripped the market. Our small-cap hedge fund strategy outstripped the S&P 500 index by 18 percentage points per annum for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have trumped the S&P 500 index by 23.3 percentage points in 8 months (see all of our picks from August).

Just as key, optimistic insider trading sentiment is another way to break down the financial markets. As the old adage goes: there are plenty of motivations for a bullish insider to drop shares of his or her company, but only one, very simple reason why they would buy. Many empirical studies have demonstrated the useful potential of this tactic if shareholders know what to do (learn more here).

Keeping this in mind, we’re going to take a gander at the recent action encompassing Chipotle Mexican Grill, Inc. (NYSE:CMG).

What have hedge funds been doing with Chipotle Mexican Grill, Inc. (NYSE:CMG)?

At the end of the first quarter, a total of 25 of the hedge funds we track were bullish in this stock, a change of 4% from the first quarter. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their holdings meaningfully.

According to our comprehensive database, Eric Mindich’s Eton Park Capital had the most valuable position in Chipotle Mexican Grill, Inc. (NYSE:CMG), worth close to $130.3 million, comprising 2.6% of its total 13F portfolio. On Eton Park Capital’s heels is Citadel Investment Group, managed by Ken Griffin, which held a $113.7 million position; 0.2% of its 13F portfolio is allocated to the company. Some other peers with similar optimism include Jim Simons’s Renaissance Technologies, Panayotis Takis Sparaggis’s Alkeon Capital Management and Ken Griffin’s Citadel Investment Group.

Now, key hedge funds were leading the bulls’ herd. Alydar Capital, managed by John Murphy, assembled the most valuable call position in Chipotle Mexican Grill, Inc. (NYSE:CMG). Alydar Capital had 16.3 million invested in the company at the end of the quarter. Lee Hobson’s Highside Capital Management also made a $12.7 million investment in the stock during the quarter. The other funds with brand new CMG positions are Bruce Kovner’s Caxton Associates LP, Alexander Mitchell’s Scopus Asset Management, and Mark Kingdon’s Kingdon Capital.

How have insiders been trading Chipotle Mexican Grill, Inc. (NYSE:CMG)?

Bullish insider trading is most useful when the company we’re looking at has seen transactions within the past six months. Over the latest 180-day time frame, Chipotle Mexican Grill, Inc. (NYSE:CMG) has experienced zero unique insiders buying, and 3 insider sales (see the details of insider trades here).

Let’s also examine hedge fund and insider activity in other stocks similar to Chipotle Mexican Grill, Inc. (NYSE:CMG). These stocks are Yum! Brands, Inc. (NYSE:YUM), Dunkin Brands Group Inc (NASDAQ:DNKN), Darden Restaurants, Inc. (NYSE:DRI), Burger King Worldwide Inc (NYSE:BKW), and Tim Hortons Inc. (USA) (NYSE:THI). This group of stocks are the members of the restaurants industry and their market caps are closest to CMG’s market cap.

With the returns demonstrated by our time-tested strategies, everyday investors must always monitor hedge fund and insider trading sentiment, and Chipotle Mexican Grill, Inc. (NYSE:CMG) shareholders fit into this picture quite nicely.

Click here to learn why you should track hedge funds