Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Chipotle Mexican Grill, Inc. (NYSE:CMG).
Is CMG stock a buy? The smart money was cutting their exposure. The number of bullish hedge fund positions were cut by 17 in recent months. Chipotle Mexican Grill, Inc. (NYSE:CMG) was in 35 hedge funds’ portfolios at the end of December. 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 Q4 rankings). There were 52 hedge funds in our database with CMG positions at the end of the third quarter.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 124 percentage points since March 2017 (see the details here).
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 10 best battery stocks to buy to identify the next stock with 10x upside potential. 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 website. With all of this in mind let’s check out the new hedge fund action regarding Chipotle Mexican Grill, Inc. (NYSE:CMG).
Do Hedge Funds Think CMG Is A Good Stock To Buy Now?
Heading into the first quarter of 2021, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of -33% from one quarter earlier. By comparison, 48 hedge funds held shares or bullish call options in CMG a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Bill Ackman’s Pershing Square has the most valuable position in Chipotle Mexican Grill, Inc. (NYSE:CMG), worth close to $1.6103 billion, amounting to 16.1% of its total 13F portfolio. Coming in second is Renaissance Technologies, holding a $822.7 million position; the fund has 0.9% of its 13F portfolio invested in the stock. Remaining peers that are bullish contain Panayotis Takis Sparaggis’s Alkeon Capital Management, D. E. Shaw’s D E Shaw and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Pershing Square allocated the biggest weight to Chipotle Mexican Grill, Inc. (NYSE:CMG), around 16.1% of its 13F portfolio. Park Presidio Capital is also relatively very bullish on the stock, setting aside 6.27 percent of its 13F equity portfolio to CMG.
Seeing as Chipotle Mexican Grill, Inc. (NYSE:CMG) has faced falling interest from the entirety of the hedge funds we track, we can see that there were a few hedge funds that elected to cut their positions entirely by the end of the fourth quarter. It’s worth mentioning that Robert Pohly’s Samlyn Capital dropped the biggest position of the 750 funds followed by Insider Monkey, valued at about $36 million in stock. Joe DiMenna’s fund, ZWEIG DIMENNA PARTNERS, also dropped its stock, about $15.6 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 17 funds by the end of the fourth quarter.
Let’s now review 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 BCE Inc. (NYSE:BCE), TC Energy Corporation (NYSE:TRP), Canadian Imperial Bank of Commerce (NYSE:CM), Cadence Design Systems Inc (NASDAQ:CDNS), Liberty Broadband Corp (NASDAQ:LBRDK), IHS Markit Ltd. (NASDAQ:INFO), and SYSCO Corporation (NYSE:SYY). All of these stocks’ market caps match CMG’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BCE | 13 | 90782 | 3 |
| TRP | 19 | 249036 | 3 |
| CM | 13 | 210773 | 1 |
| CDNS | 32 | 1405426 | -5 |
| LBRDK | 80 | 7270683 | 24 |
| INFO | 59 | 2489276 | 15 |
| SYY | 40 | 2513070 | 7 |
| Average | 36.6 | 2032721 | 6.9 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 36.6 hedge funds with bullish positions and the average amount invested in these stocks was $2033 million. That figure was $3374 million in CMG’s case. Liberty Broadband Corp (NASDAQ:LBRDK) is the most popular stock in this table. On the other hand BCE Inc. (NYSE:BCE) is the least popular one with only 13 bullish hedge fund positions. Chipotle Mexican Grill, Inc. (NYSE:CMG) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CMG is 24.6. 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 negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 7.9% in 2021 through April 1st and surpassed the market again by 0.4 percentage points. Unfortunately CMG wasn’t nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); CMG investors were disappointed as the stock returned 3.7% since the end of December (through 4/1) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
