Is British American Tobacco PLC (ADR) (BTI) Going to Burn These Hedge Funds?

Does British American Tobacco PLC (ADR) (NYSEMKT:BTI) represent a good buying opportunity at the moment? Let’s briefly check the hedge fund sentiment towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but their stock picks have been generating superior risk-adjusted returns on average over the years.

British American Tobacco PLC (ADR) (NYSEMKT:BTI) shareholders have witnessed an increase in enthusiasm from smart money lately. At the end of this article we will also compare BTI to other stocks including TOTAL S.A. (ADR) (NYSE:TOT), BP plc (ADR) (NYSE:BP), and Mastercard Inc (NYSE:MA) to get a better sense of its popularity.

According to most stock holders, hedge funds are seen as slow, old financial vehicles of yesteryear. While there are greater than 8000 funds with their doors open at the moment, We look at the top tier of this group, approximately 700 funds. These money managers administer the lion’s share of the smart money’s total capital, and by observing their finest stock picks, Insider Monkey has unearthed a few investment strategies that have historically outstripped the broader indices. Insider Monkey’s small-cap hedge fund strategy surpassed the S&P 500 index by 12 percentage points annually for a decade in their back tests.

Now, let’s take a gander at the recent action surrounding British American Tobacco PLC (ADR) (NYSEMKT:BTI).

What have hedge funds been doing with British American Tobacco PLC (ADR) (NYSEMKT:BTI)?

At the end of the third quarter, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from one quarter earlier. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Gardner Russo & Gardner, managed by Tom Russo, holds the largest position in British American Tobacco PLC (ADR) (NYSEMKT:BTI). Gardner Russo & Gardner has an $274.3 million position in the stock, comprising 2.5% of its 13F portfolio. The second largest stake is held by Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $53.3 million position; 0.3% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors with similar optimism consist of Jim Simons’s Renaissance Technologies, William B. Gray’s Orbis Investment Management and Joel Greenblatt’s Gotham Asset Management.

Now, specific money managers have jumped into British American Tobacco PLC (ADR) (NYSEMKT:BTI) headfirst. Stevens Capital Management, managed by Matthew Tewksbury, established a position in British American Tobacco PLC (ADR) (NYSEMKT:BTI). Stevens Capital Management had $0.8 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated an $0.4 million position during the quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as British American Tobacco PLC (ADR) (NYSEMKT:BTI) but similarly valued. We will take a look at TOTAL S.A. (ADR) (NYSE:TOT), BP plc (ADR) (NYSE:BP), Mastercard Inc (NYSE:MA), and Bristol Myers Squibb Co. (NYSE:BMY). This group of stocks’ market valuations are closest to BTI’s market valuation.

As you can see these stocks had an average of 47 hedge funds with bullish positions and the average amount invested in these stocks was $2551 million. That figure was $399 million in BTI’s case. Mastercard Inc (NYSE:MA) is the most popular stock in this table. On the other hand TOTAL S.A. (ADR) (NYSE:TOT) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks British American Tobacco PLC (ADR) (NYSEMKT:BTI) is even less popular than TOT. To comprehend why the smart money isn’t behind this stock, further detailed analyses are necessary. This doesn’t necessarily implies that this stock doesn’t represent a good buying opportunity at the moment. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case, more research is warranted.