We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money 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 (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Chipotle Mexican Grill, Inc. (NYSE:CMG).
Is CMG a good stock to buy? Hedge funds were buying. The number of long hedge fund bets moved up by 6 in recent months. Chipotle Mexican Grill, Inc. (NYSE:CMG) was in 41 hedge funds’ portfolios at the end of March. The all time high for this statistic is 52. Our calculations also showed that CMG isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 35 hedge funds in our database with CMG positions at the end of the fourth quarter.
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 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Richard Chilton of Chilton Investment Company
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation, which is why we are checking out this inflation play. We go through lists like 10 best gold stocks to buy to identify promising stocks. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind we’re going to take a look at the new hedge fund action encompassing Chipotle Mexican Grill, Inc. (NYSE:CMG).
Do Hedge Funds Think CMG Is A Good Stock To Buy Now?
At Q1’s end, a total of 41 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from the fourth quarter of 2020. By comparison, 48 hedge funds held shares or bullish call options in CMG 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, Pershing Square was the largest shareholder of Chipotle Mexican Grill, Inc. (NYSE:CMG), with a stake worth $1543.2 million reported as of the end of March. Trailing Pershing Square was Citadel Investment Group, which amassed a stake valued at $620.3 million. Alkeon Capital Management, Renaissance Technologies, and PEAK6 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 Pershing Square allocated the biggest weight to Chipotle Mexican Grill, Inc. (NYSE:CMG), around 14.75% of its 13F portfolio. Park Presidio Capital is also relatively very bullish on the stock, designating 6.09 percent of its 13F equity portfolio to CMG.
As industrywide interest jumped, key money managers were breaking ground themselves. Chilton Investment Company, managed by Richard Chilton, created the biggest position in Chipotle Mexican Grill, Inc. (NYSE:CMG). Chilton Investment Company had $14.7 million invested in the company at the end of the quarter. Alec Litowitz and Ross Laser’s Magnetar Capital also initiated a $2.2 million position during the quarter. The following funds were also among the new CMG investors: Jinghua Yan’s TwinBeech Capital, Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management, and Joel Greenblatt’s Gotham Asset Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Chipotle Mexican Grill, Inc. (NYSE:CMG) but similarly valued. We will take a look at Lululemon Athletica inc. (NASDAQ:LULU), American International Group Inc (NYSE:AIG), Digital Realty Trust, Inc. (NYSE:DLR), HP Inc. (NYSE:HPQ), Veeva Systems Inc (NYSE:VEEV), Amphenol Corporation (NYSE:APH), and Trane Technologies plc (NYSE:TT). This group of stocks’ market caps are closest to CMG’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LULU | 41 | 751855 | -9 |
| AIG | 33 | 2471193 | -8 |
| DLR | 22 | 296357 | -1 |
| HPQ | 43 | 1526496 | 4 |
| VEEV | 39 | 966072 | 3 |
| APH | 42 | 1077461 | 1 |
| TT | 35 | 1092597 | 1 |
| Average | 36.4 | 1168862 | -1.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 36.4 hedge funds with bullish positions and the average amount invested in these stocks was $1169 million. That figure was $3038 million in CMG’s case. HP Inc. (NYSE:HPQ) is the most popular stock in this table. On the other hand Digital Realty Trust, Inc. (NYSE:DLR) is the least popular one with only 22 bullish hedge fund positions. Chipotle Mexican Grill, Inc. (NYSE:CMG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CMG is 78.9. 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 17.4% in 2021 through June 18th and beat the market again by 6.1 percentage points. Unfortunately CMG wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on CMG were disappointed as the stock returned -1.5% since the end of March (through 6/18) 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 many of these stocks already outperformed the market since 2019.
Follow Chipotle Mexican Grill Inc (NYSE:CMG)
Follow Chipotle Mexican Grill Inc (NYSE:CMG)
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Disclosure: None. This article was originally published at Insider Monkey.
