Is XP Stock A Buy or Sell?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding XP Inc. (NASDAQ:XP).

Is XP stock a buy? XP Inc. (NASDAQ:XP) has experienced an increase in support from the world’s most elite money managers lately. XP Inc. (NASDAQ:XP) was in 29 hedge funds’ portfolios at the end of December. The all time high for this statistic is 28. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 20 hedge funds in our database with XP positions at the end of the third quarter. Our calculations also showed that XP isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here).

Lee Ainslie of Maverick Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we heard that billionaire Peter Thiel is backing this biotech stock. So, we are taking a closer look at this space. We go through lists like the 10 best biotech stocks under $10 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. Keeping this in mind let’s analyze the key hedge fund action regarding XP Inc. (NASDAQ:XP).

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

Heading into the first quarter of 2021, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of 45% from the third quarter of 2020. On the other hand, there were a total of 28 hedge funds with a bullish position in XP a year ago. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

More specifically, Alkeon Capital Management was the largest shareholder of XP Inc. (NASDAQ:XP), with a stake worth $169.6 million reported as of the end of December. Trailing Alkeon Capital Management was Maverick Capital, which amassed a stake valued at $76 million. Adage Capital Management, ThornTree Capital Partners, and Renaissance Technologies 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 ThornTree Capital Partners allocated the biggest weight to XP Inc. (NASDAQ:XP), around 5.27% of its 13F portfolio. Cartica Management is also relatively very bullish on the stock, earmarking 3.67 percent of its 13F equity portfolio to XP.

There weren’t any hedge funds initiating brand new positions in the stock during the fourth quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as XP Inc. (NASDAQ:XP) but similarly valued. We will take a look at Realty Income Corporation (NYSE:O), Nasdaq, Inc. (NASDAQ:NDAQ), Farfetch Limited (NYSE:FTCH), PPL Corporation (NYSE:PPL), Church & Dwight Co., Inc. (NYSE:CHD), MarketAxess Holdings Inc. (NASDAQ:MKTX), and MongoDB, Inc. (NASDAQ:MDB). This group of stocks’ market caps resemble XP’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.4 hedge funds with bullish positions and the average amount invested in these stocks was $1136 million. That figure was $473 million in XP’s case. Farfetch Limited (NYSE:FTCH) is the most popular stock in this table. On the other hand PPL Corporation (NYSE:PPL) is the least popular one with only 21 bullish hedge fund positions. XP Inc. (NASDAQ:XP) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for XP is 55.4. 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 12.2% in 2021 through April 12th and surpassed the market again by 1.5 percentage points. Unfortunately XP wasn’t nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); XP investors were disappointed as the stock returned -3.6% since the end of December (through 4/12) 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.

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