Is Starbucks Corporation (NASDAQ:SBUX) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Starbucks Corporation (NASDAQ:SBUX) was in 66 hedge funds’ portfolios at the end of December. SBUX investors should be aware of an increase in hedge fund interest lately. There were 59 hedge funds in our database with SBUX holdings at the end of the previous quarter. Our calculations also showed that SBUX isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to 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 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 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.
Bill Ackman of Pershing Square
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Now let’s review the recent hedge fund action regarding Starbucks Corporation (NASDAQ:SBUX).
What does smart money think about Starbucks Corporation (NASDAQ:SBUX)?
At Q4’s end, a total of 66 of the hedge funds tracked by Insider Monkey were long this stock, a change of 12% from the previous quarter. On the other hand, there were a total of 42 hedge funds with a bullish position in SBUX a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
Among these funds, Arrowstreet Capital held the most valuable stake in Starbucks Corporation (NASDAQ:SBUX), which was worth $862.8 million at the end of the third quarter. On the second spot was Cedar Rock Capital which amassed $775 million worth of shares. Pershing Square, Two Sigma Advisors, and Renaissance Technologies 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 Cedar Rock Capital allocated the biggest weight to Starbucks Corporation (NASDAQ:SBUX), around 17.54% of its 13F portfolio. Pacifica Capital Investments is also relatively very bullish on the stock, earmarking 15.77 percent of its 13F equity portfolio to SBUX.
As industrywide interest jumped, key hedge funds were breaking ground themselves. Hitchwood Capital Management, managed by James Crichton, assembled the most outsized position in Starbucks Corporation (NASDAQ:SBUX). Hitchwood Capital Management had $49.2 million invested in the company at the end of the quarter. Matthew Hulsizer’s PEAK6 Capital Management also made a $28.5 million investment in the stock during the quarter. The following funds were also among the new SBUX investors: Jeff Lignelli’s Incline Global Management, Michael Kharitonov and Jon David McAuliffe’s Voleon Capital, and Ryan Caldwell’s Chiron Investment Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Starbucks Corporation (NASDAQ:SBUX) but similarly valued. These stocks are Diageo plc (NYSE:DEO), Toronto-Dominion Bank (NYSE:TD), American Express Company (NYSE:AXP), and American Tower Corporation (NYSE:AMT). This group of stocks’ market values match SBUX’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DEO | 17 | 794917 | -5 |
| TD | 17 | 312660 | 0 |
| AXP | 58 | 22554070 | 3 |
| AMT | 46 | 3658378 | -6 |
| Average | 34.5 | 6830006 | -2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.5 hedge funds with bullish positions and the average amount invested in these stocks was $6830 million. That figure was $5064 million in SBUX’s case. American Express Company (NYSE:AXP) is the most popular stock in this table. On the other hand Diageo plc (NYSE:DEO) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Starbucks Corporation (NASDAQ:SBUX) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks also gained 0.1% in 2020 through March 2nd and beat the market by 4.1 percentage points. Unfortunately SBUX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SBUX were disappointed as the stock returned -5.9% during the first two months of 2020 (through March 2nd) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
