Is McDonald’s (MCD) Stock A Buy or Sell?

In this article we will check out the progression of hedge fund sentiment towards McDonald’s Corporation (NYSE:MCD) and determine whether it is a good investment 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.

Is MCD stock a buy or sell? Hedge funds were reducing their bets on the stock. The number of long hedge fund bets dropped by 3 in recent months. McDonald’s Corporation (NYSE:MCD) was in 62 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 84. Our calculations also showed that MCD isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 65 hedge funds in our database with MCD positions at the end of the third quarter.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 124 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Clint Carlson of Carlson Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. Recently Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 best biotech stocks to invest in to pick the next stock that will deliver a 10x return. 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 (or at the end of this article). Now let’s take a gander at the new hedge fund action surrounding McDonald’s Corporation (NYSE:MCD).

Do Hedge Funds Think MCD Is A Good Stock To Buy Now?

At the end of the fourth quarter, a total of 62 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from the previous quarter. By comparison, 57 hedge funds held shares or bullish call options in MCD a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in McDonald’s Corporation (NYSE:MCD) was held by D E Shaw, which reported holding $550 million worth of stock at the end of December. It was followed by Arrowstreet Capital with a $457.4 million position. Other investors bullish on the company included Two Sigma Advisors, Citadel Investment Group, and Millennium Management. In terms of the portfolio weights assigned to each position Masterton Capital Management allocated the biggest weight to McDonald’s Corporation (NYSE:MCD), around 3.02% of its 13F portfolio. Locust Wood Capital Advisers is also relatively very bullish on the stock, setting aside 2.14 percent of its 13F equity portfolio to MCD.

Due to the fact that McDonald’s Corporation (NYSE:MCD) has witnessed falling interest from hedge fund managers, it’s safe to say that there lies a certain “tier” of money managers who were dropping their entire stakes by the end of the fourth quarter. It’s worth mentioning that Gabriel Plotkin’s Melvin Capital Management cut the biggest stake of all the hedgies watched by Insider Monkey, worth about $296.3 million in stock, and Steve Cohen’s Point72 Asset Management was right behind this move, as the fund cut about $21.9 million worth. These moves are important to note, as total hedge fund interest was cut by 3 funds by the end of the fourth quarter.

Let’s now take a look at hedge fund activity in other stocks similar to McDonald’s Corporation (NYSE:MCD). We will take a look at Unilever PLC (NYSE:UL), Danaher Corporation (NYSE:DHR), Medtronic plc (NYSE:MDT), SAP SE (NYSE:SAP), NextEra Energy, Inc. (NYSE:NEE), Texas Instruments Incorporated (NASDAQ:TXN), and Honeywell International Inc. (NYSE:HON). This group of stocks’ market caps are similar to MCD’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 48.7 hedge funds with bullish positions and the average amount invested in these stocks was $2474 million. That figure was $2890 million in MCD’s case. Danaher Corporation (NYSE:DHR) is the most popular stock in this table. On the other hand SAP SE (NYSE:SAP) is the least popular one with only 14 bullish hedge fund positions. McDonald’s Corporation (NYSE:MCD) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MCD is 60. 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 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 5.3% in 2021 through March 19th and beat the market again by 0.8 percentage points. Unfortunately MCD wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on MCD were disappointed as the stock returned 4.3% since the end of December (through 3/19) 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 many of these stocks already outperformed the market since 2019.

Disclosure: None. This article was originally published at Insider Monkey.