Is Diageo plc (ADR) (DEO) A Good Stock To Buy?

You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund investors like Carl Icahn and George Soros hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.

In this article, we are going to take a look at the hedge fund sentiment towards Diageo plc (ADR) (NYSE:DEO). The company was included in the 13F portfolios of 16 funds tracked by Insider Monkey at the end of September.  DEO investors should be aware of a decrease in hedge fund interest as there had been 18 funds bullish on the company a quarter earlier. At the end of this article we will also compare DEO to other stocks including Reynolds American, Inc. (NYSE:RAI), Celgene Corporation (NASDAQ:CELG), and AstraZeneca plc (ADR) (NYSE:AZN) to get a better sense of its popularity.

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How have hedgies been trading Diageo plc (ADR) (NYSE:DEO)?

Heading into the fourth quarter of 2016, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, which represents a fall of 11% from the second quarter of 2016. Below, you can check out the change in hedge fund sentiment towards DEO over the last five 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.
deo
When looking at the institutional investors followed by Insider Monkey, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital has the biggest position in Diageo plc (ADR) (NYSE:DEO), worth close to $398.2 million, amounting to 1.3% of its total 13F portfolio. Coming in second is Tom Russo’s Gardner Russo & Gardner, which holds a $268.5 million position; the fund has 2.2% of its 13F portfolio invested in the stock. Some other professional money managers that hold long positions consist of Tom Gayner’s Markel Gayner Asset Management and Mario Gabelli’s GAMCO Investors. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Judging by the fact that Diageo plc (ADR) (NYSE:DEO) has gone through a decline in interest from hedge fund managers, we can see that there was a specific group of fund managers who sold off their full holdings by the end of the third quarter. Interestingly, Ken Griffin’s Citadel Investment Group cashed in the biggest position of all the hedgies watched by Insider Monkey, valued at an estimated $5.8 million in call options, and Andre F. Perold’s HighVista Strategies was right behind this move, as the fund said goodbye to about $4.8 million worth of shares.

Let’s go over hedge fund activity in other stocks similar to Diageo plc (ADR) (NYSE:DEO). We will take a look at Reynolds American, Inc. (NYSE:RAI), Celgene Corporation (NASDAQ:CELG), AstraZeneca plc (ADR) (NYSE:AZN), and Lockheed Martin Corporation (NYSE:LMT). This group of stocks’ market values match DEO’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RAI 39 1069207 -1
CELG 67 2567429 -1
AZN 27 669117 3
LMT 34 755807 -5

As you can see these stocks had an average of 42 funds with bullish positions and the average amount invested in these stocks was $1.27 billion. That figure was $1.1 billion in DEO’s case. Celgene Corporation (NASDAQ:CELG) is the most popular stock in this table with 67 funds holding shares. On the other hand AstraZeneca plc (ADR) (NYSE:AZN) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks Diageo plc (ADR) (NYSE:DEO) is even less popular than AstraZeneca plc (ADR) (NYSE:AZN). Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

Disclosure: None