Is RIO Stock A Buy or Sell?

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Rio Tinto Group (NYSE:RIO).

Is RIO stock a buy? The smart money was taking a bullish view. The number of bullish hedge fund bets improved by 3 in recent months. Rio Tinto Group (NYSE:RIO) was in 26 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic was previously 25. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that RIO isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 23 hedge funds in our database with RIO 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. Hedge funds have more than $3 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. 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). So you can still find a lot of gems by following hedge funds’ moves today.

Ken Heebner of Capital Growth Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now 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. Now we’re going to take a look at the key hedge fund action encompassing Rio Tinto Group (NYSE:RIO).

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

Heading into the first quarter of 2021, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards RIO over the last 22 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Fisher Asset Management, managed by Ken Fisher, holds the largest position in Rio Tinto Group (NYSE:RIO). Fisher Asset Management has a $915.1 million position in the stock, comprising 0.7% of its 13F portfolio. Sitting at the No. 2 spot is Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $476 million position; the fund has 0.7% of its 13F portfolio invested in the stock. Other peers with similar optimism encompass Robert Bishop’s Impala Asset Management, Israel Englander’s Millennium Management and Renaissance Technologies. In terms of the portfolio weights assigned to each position Impala Asset Management allocated the biggest weight to Rio Tinto Group (NYSE:RIO), around 7.45% of its 13F portfolio. Pittencrieff Partners – Gabalex Capital is also relatively very bullish on the stock, dishing out 2.87 percent of its 13F equity portfolio to RIO.

Consequently, key hedge funds were breaking ground themselves. Capital Growth Management, managed by Ken Heebner, assembled the biggest position in Rio Tinto Group (NYSE:RIO). Capital Growth Management had $18.1 million invested in the company at the end of the quarter. Josh Donfeld and David Rogers’s Castle Hook Partners also initiated a $16.6 million position during the quarter. The other funds with new positions in the stock are Andrew Sandler’s Sandler Capital Management, Frank Fu’s CaaS Capital, and Nicholas Bagnall’s Te Ahumairangi Investment Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Rio Tinto Group (NYSE:RIO) but similarly valued. We will take a look at Diageo plc (NYSE:DEO), GlaxoSmithKline plc (NYSE:GSK), Stryker Corporation (NYSE:SYK), Booking Holdings Inc. (NASDAQ:BKNG), The Goldman Sachs Group, Inc. (NYSE:GS), Uber Technologies, Inc. (NYSE:UBER), and CVS Health Corporation (NYSE:CVS). This group of stocks’ market caps resemble RIO’s market cap.

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As you can see these stocks had an average of 67.4 hedge funds with bullish positions and the average amount invested in these stocks was $4220 million. That figure was $1712 million in RIO’s case. Uber Technologies, Inc. (NYSE:UBER) is the most popular stock in this table. On the other hand Diageo plc (NYSE:DEO) is the least popular one with only 23 bullish hedge fund positions. Rio Tinto Group (NYSE:RIO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for RIO is 39.3. 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. 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 12.3% in 2021 through April 19th and still beat the market by 0.9 percentage points. A small number of hedge funds were also right about betting on RIO as the stock returned 20% since the end of the fourth quarter (through 4/19) and outperformed the market by an even larger margin.

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