Should You Buy Chipotle Mexican Grill, Inc. (CMG)?

Hedge funds run by legendary names like Nelson Peltz and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant out-performance. These stocks have been on a tear since the end of June, outperforming large-cap index funds by more than 10 percentage points. That’s why we pay special attention to hedge fund activity in these stocks.

In this article, we are going to take a closer look at Chipotle Mexican Grill, Inc. (NYSE:CMG), which has experienced an increase in hedge fund sentiment recently. At the end of September, 41 funds from our database held shares, compared to 39 funds a quarter earlier. At the end of this article we will also compare CMG to other stocks including Federal Realty Investment Trust (NYSE:FRT), Xilinx, Inc. (NASDAQ:XLNX), and D.R. Horton, Inc. (NYSE:DHI) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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Now, we’re going to take a peek at the fresh action encompassing Chipotle Mexican Grill, Inc. (NYSE:CMG).

How are hedge funds trading Chipotle Mexican Grill, Inc. (NYSE:CMG)?

Heading into the fourth quarter of 2016, 41 investors followed by Insider Monkey held long positions in Chipotle Mexican Grill, up by 5% over the quarter. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Generation Investment Management, managed by David Blood and Al Gore, holds the number one position in Chipotle Mexican Grill, Inc. (NYSE:CMG). Generation Investment Management has a $241.9 million position in the stock, comprising 2.6% of its 13F portfolio. The second largest stake is held by Pershing Square, managed by Bill Ackman, which holds a $234.7 million position; the fund has 4.3% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish contain Eashwar Krishnan’s Tybourne Capital Management, and Robert Pitts’ Steadfast Capital Management.

As industrywide interest jumped, some big names were leading the bulls’ herd. Pershing Square established the most valuable position in Chipotle Mexican Grill, Inc. (NYSE:CMG) and it was followed by Ken Griffin’s Citadel Investment Group, which also initiated a $161.3 million position during the quarter. The other funds with brand new CMG positions are Anand Desai’s Darsana Capital Partners, Christopher James’s Partner Fund Management, and Curtis Macnguyen’s Ivory Capital (Investment Mgmt).

Let’s go over hedge fund activity in other stocks similar to Chipotle Mexican Grill, Inc. (NYSE:CMG). These stocks are Federal Realty Investment Trust (NYSE:FRT), Xilinx, Inc. (NASDAQ:XLNX), D.R. Horton, Inc. (NYSE:DHI), and Extra Space Storage, Inc. (NYSE:EXR). All of these stocks’ market caps resemble CMG’s market cap.

As you can see these stocks had an average of 30 funds with bullish positions at the end of September and the average amount invested in these stocks was $660 million. That figure was $1.60 billion in CMG’s case. Xilinx, Inc. (NASDAQ:XLNX) is the most popular stock in this table with 41 funds holding shares. On the other hand, Federal Realty Investment Trust (NYSE:FRT) is the least popular one with only 17 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. This is a slightly positive signal, but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard Xilinx, Inc. (NASDAQ:XLNX) might be a better candidate to consider a long position.