Was The Smart Money Right About StoneCo Ltd. (STNE)?

We at Insider Monkey have gone over 873 13F filings that hedge funds and prominent investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th. In this article, we look at what those funds think of StoneCo Ltd. (NASDAQ:STNE) based on that data.

StoneCo Ltd. (NASDAQ:STNE) has seen an increase in enthusiasm from smart money lately. StoneCo Ltd. (NASDAQ:STNE) was in 44 hedge funds’ portfolios at the end of June. The all time high for this statistic is 47. There were 39 hedge funds in our database with STNE holdings at the end of March. Our calculations also showed that STNE isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 79 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Cathie Wood of ARK Investment Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla 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. Keeping this in mind we’re going to take a look at the key hedge fund action regarding StoneCo Ltd. (NASDAQ:STNE).

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

At the end of the second quarter, a total of 44 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in STNE over the last 24 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Warren Buffett’s Berkshire Hathaway has the largest position in StoneCo Ltd. (NASDAQ:STNE), worth close to $717.2 million, corresponding to 0.2% of its total 13F portfolio. Sitting at the No. 2 spot is Lone Pine Capital, holding a $593.2 million position; the fund has 1.9% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism consist of Eashwar Krishnan’s Tybourne Capital Management, John Armitage’s Egerton Capital Limited and Daniel Sundheim’s D1 Capital Partners. In terms of the portfolio weights assigned to each position ROAM Global Management allocated the biggest weight to StoneCo Ltd. (NASDAQ:STNE), around 8.53% of its 13F portfolio. Castle Hook Partners is also relatively very bullish on the stock, setting aside 5.75 percent of its 13F equity portfolio to STNE.

Now, key hedge funds were leading the bulls’ herd. D1 Capital Partners, managed by Daniel Sundheim, assembled the largest position in StoneCo Ltd. (NASDAQ:STNE). D1 Capital Partners had $129.8 million invested in the company at the end of the quarter. Catherine D. Wood’s ARK Investment Management also made a $39.3 million investment in the stock during the quarter. The other funds with brand new STNE positions are Teresa Barger’s Cartica Management, James Crichton’s Hitchwood Capital Management, and Jeff Lignelli’s Incline Global Management.

Let’s now take a look at hedge fund activity in other stocks similar to StoneCo Ltd. (NASDAQ:STNE). These stocks are Avantor, Inc. (NYSE:AVTR), Halliburton Company (NYSE:HAL), Take-Two Interactive Software, Inc. (NASDAQ:TTWO), Steris Plc (NYSE:STE), Trimble Inc. (NASDAQ:TRMB), Ingersoll Rand Inc. (NYSE:IR), and Ameren Corporation (NYSE:AEE). All of these stocks’ market caps are similar to STNE’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.9 hedge funds with bullish positions and the average amount invested in these stocks was $1357 million. That figure was $2740 million in STNE’s case. Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is the most popular stock in this table. On the other hand Ameren Corporation (NYSE:AEE) is the least popular one with only 23 bullish hedge fund positions. StoneCo Ltd. (NASDAQ:STNE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for STNE is 70.9. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 through November 5th and beat the market again by 3.1 percentage points. Unfortunately STNE wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on STNE were disappointed as the stock returned -54.8% since the end of June (through 11/5) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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