Is Ultrapar Participacoes SA (UGP) A Good Stock To Buy?

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Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Ultrapar Participacoes SA (NYSE:UGP)? The smart money sentiment can provide an answer to this question.

Is UGP a good stock to buy? Ultrapar Participacoes SA (NYSE:UGP) was in 10 hedge funds’ portfolios at the end of June. The all time high for this statistic is 12. UGP investors should pay attention to an increase in hedge fund interest recently. There were 7 hedge funds in our database with UGP holdings at the end of March. Our calculations also showed that UGP isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

According to most investors, hedge funds are assumed to be underperforming, old investment vehicles of the past. While there are over 8000 funds trading at the moment, Our researchers hone in on the bigwigs of this group, about 850 funds. Most estimates calculate that this group of people manage most of the smart money’s total asset base, and by paying attention to their top stock picks, Insider Monkey has spotted a few investment strategies that have historically beaten the market. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Also, our monthly newsletter’s portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

Matthew Hulsizer of PEAK6 Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, 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. Now let’s take a gander at the fresh hedge fund action encompassing Ultrapar Participacoes SA (NYSE:UGP).

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

At the end of June, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 43% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards UGP over the last 24 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies has the biggest position in Ultrapar Participacoes SA (NYSE:UGP), worth close to $13.4 million, amounting to less than 0.1%% of its total 13F portfolio. Coming in second is Citadel Investment Group, led by Ken Griffin, holding a $0.8 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism consist of Cliff Asness’s AQR Capital Management, David Harding’s Winton Capital Management and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Renaissance Technologies allocated the biggest weight to Ultrapar Participacoes SA (NYSE:UGP), around 0.02% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, dishing out 0.01 percent of its 13F equity portfolio to UGP.

As one would reasonably expect, some big names were breaking ground themselves. Winton Capital Management, managed by David Harding, established the most valuable position in Ultrapar Participacoes SA (NYSE:UGP). Winton Capital Management had $0.3 million invested in the company at the end of the quarter. Matthew Hulsizer’s PEAK6 Capital Management also made a $0.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Donald Sussman’s Paloma Partners and Ken Griffin’s Citadel Investment Group.

Let’s check out hedge fund activity in other stocks similar to Ultrapar Participacoes SA (NYSE:UGP). These stocks are Summit Materials Inc (NYSE:SUM), Enel Chile S.A. (NYSE:ENIC), TechnipFMC plc (NYSE:FTI), Turkcell Iletisim Hizmetleri A.S. (NYSE:TKC), PS Business Parks Inc (NYSE:PSB), Community Bank System, Inc. (NYSE:CBU), and Yamana Gold Inc. (NYSE:AUY). This group of stocks’ market valuations are similar to UGP’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SUM 20 110138 -12
ENIC 7 20092 0
FTI 25 442009 0
TKC 7 1874 -1
PSB 16 111109 4
CBU 6 17024 -2
AUY 16 129402 -5
Average 13.9 118807 -2.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.9 hedge funds with bullish positions and the average amount invested in these stocks was $119 million. That figure was $16 million in UGP’s case. TechnipFMC plc (NYSE:FTI) is the most popular stock in this table. On the other hand Community Bank System, Inc. (NYSE:CBU) is the least popular one with only 6 bullish hedge fund positions. Ultrapar Participacoes SA (NYSE:UGP) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for UGP is 43.5. 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 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 25.7% in 2021 through September 27th and surpassed the market again by 6.2 percentage points. Unfortunately UGP wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); UGP investors were disappointed as the stock returned -22.6% since the end of June (through 9/27) 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 most of these stocks already outperformed the market in 2021.

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