Were Hedge Funds Right About Starbucks (SBUX)?

After several tireless days we have finished crunching the numbers from nearly 900 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of December 31st. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Starbucks Corporation (NASDAQ:SBUX).

Is Starbucks Corporation (NASDAQ:SBUX) going to take off soon? Hedge funds were turning bullish. The number of bullish hedge fund positions increased by 1 in recent months. Starbucks Corporation (NASDAQ:SBUX) was in 67 hedge funds’ portfolios at the end of December. The all time high for this statistic is 68. Our calculations also showed that SBUX isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 66 hedge funds in our database with SBUX holdings at the end of September.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Bill Ackman of Pershing Square

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. Keeping this in mind we’re going to take a peek at the recent hedge fund action regarding Starbucks Corporation (NASDAQ:SBUX).

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

At fourth quarter’s end, a total of 67 of the hedge funds tracked by Insider Monkey were long this stock, a change of 2% from the previous quarter. On the other hand, there were a total of 66 hedge funds with a bullish position in SBUX a year ago. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Terry Smith’s Fundsmith LLP has the number one position in Starbucks Corporation (NASDAQ:SBUX), worth close to $1.117 billion, accounting for 3.7% of its total 13F portfolio. The second most bullish fund manager is Pershing Square, led by Bill Ackman, holding a $1.0773 billion position; the fund has 10.8% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism contain Ken Fisher’s Fisher Asset Management, Andy Brown’s Cedar Rock Capital and Stanley Druckenmiller’s Duquesne Capital. In terms of the portfolio weights assigned to each position Pacifica Capital Investments allocated the biggest weight to Starbucks Corporation (NASDAQ:SBUX), around 16.22% of its 13F portfolio. Cedar Rock Capital is also relatively very bullish on the stock, earmarking 15.22 percent of its 13F equity portfolio to SBUX.

Now, key money managers have jumped into Starbucks Corporation (NASDAQ:SBUX) headfirst. Balyasny Asset Management, managed by Dmitry Balyasny, initiated the most outsized position in Starbucks Corporation (NASDAQ:SBUX). Balyasny Asset Management had $66.2 million invested in the company at the end of the quarter. Anand Parekh’s Alyeska Investment Group also made a $19.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Jason McDougall’s 11 Capital Partners, Kerr Neilson’s Platinum Asset Management, and Elise Di Vincenzo Crumbine’s Stormborn Capital Management.

Let’s go over hedge fund activity in other stocks similar to Starbucks Corporation (NASDAQ:SBUX). These stocks are Sony Corporation (NYSE:SNE), Wells Fargo & Company (NYSE:WFC), Morgan Stanley (NYSE:MS), Sanofi (NYSE:SNY), The Boeing Company (NYSE:BA), Lowe’s Companies, Inc. (NYSE:LOW), and China Mobile Limited (NYSE:CHL). All of these stocks’ market caps resemble SBUX’s market cap.

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As you can see these stocks had an average of 49.6 hedge funds with bullish positions and the average amount invested in these stocks was $3240 million. That figure was $4991 million in SBUX’s case. Wells Fargo & Company (NYSE:WFC) is the most popular stock in this table. On the other hand China Mobile Limited (NYSE:CHL) is the least popular one with only 13 bullish hedge fund positions. Starbucks Corporation (NASDAQ:SBUX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SBUX is 67. 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 12.3% in 2021 through April 19th and beat the market again by 0.9 percentage points. Unfortunately SBUX wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on SBUX were disappointed as the stock returned 10.4% since the end of December (through 4/19) 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.