Is PepsiCo, Inc. (PEP) A Good Stock To Buy?

Before we spend many hours researching a company, we’d like to analyze what hedge funds and billionaire investors think of the stock first. We would like to do so because the elite investors’ consensus returns have been exceptional. The top 30 S&P 500 stocks among hedge funds at the end of September 2014 yielded an average return of 9.5% during the last 12 months ending in October 30. Sixty three percent of these 30 stocks outperformed the market. Although the elite funds occasionally have their duds, such as Micron and Anadarko Petroleum, which fell 50% and 26%, respectively during the same time period, the hedge fund picks seem to work on average. In the following paragraphs, we find out what the billionaire investors and hedge funds think of PepsiCo, Inc. (NYSE:PEP).

PepsiCo, Inc. (NYSE:PEP) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 57 hedge funds’ portfolios at the end of September. At the end of this article, we will also compare PepsiCo, Inc. (NYSE:PEP) to other stocks, including Cisco Systems, Inc. (NASDAQ:CSCO), PetroChina Company Limited (ADR) (NYSE:PTR), and Reynolds American, Inc. (NYSE:RAI) to get a better sense of its popularity.

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If you’d ask most shareholders, hedge funds are viewed as unimportant, outdated investment tools of yesteryear. While there are over 8000 funds in operation at the moment, Our experts choose to focus on the upper echelon of this club, around 700 funds. Most estimates calculate that this group of people controls most of the hedge fund industry’s total asset base, and by watching their top investments, Insider Monkey has brought to light numerous investment strategies that have historically surpassed the market. Insider Monkey’s small-cap hedge fund strategy exceeded the S&P 500 index by 12 percentage points a year for a decade in their back tests.

Keeping this in mind, let’s check out the key action regarding PepsiCo, Inc. (NYSE:PEP).

What does the smart money think about PepsiCo, Inc. (NYSE:PEP)?

Heading into Q4, a total of 57 of the hedge funds tracked by Insider Monkey held long positions in this stock, unchanged from the second quarter. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Trian Partners, managed by Nelson Peltz, holds the number one position in PepsiCo, Inc. (NYSE:PEP). Trian Partners has a $1.72 billion position in the stock, comprising 14.7% of its 13F portfolio. Sitting at the No. 2 spot is Donald Yacktman of Yacktman Asset Management, with an $1.68 billion position; the fund has 11% of its 13F portfolio invested in the stock. Remaining professional money managers that hold long positions encompass Boykin Curry’s Eagle Capital Management, Ken Fisher’s Fisher Asset Management, and Phill Gross and Robert Atchinson’s Adage Capital Management.

Seeing as PepsiCo, Inc. (NYSE:PEP) has faced a declining sentiment from the smart money, logic holds that there was a specific group of funds who were dropping their entire stakes last quarter. At the top of the heap, Israel Englander’s Millennium Management sold off the biggest investment of the 700 funds followed by Insider Monkey, totaling close to $173.1 million in stock. Steve Cohen’s fund, Point72 Asset Management, also sold off its stock, about $18.8 million worth of shares. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as PepsiCo, Inc. (NYSE:PEP) but similarly valued. We will take a look at Cisco Systems, Inc. (NASDAQ:CSCO), PetroChina Company Limited (ADR) (NYSE:PTR), Reynolds American, Inc. (NYSE:RAI), and Sanofi SA (ADR) (NYSE:SNY). This group of stocks’ market valuations is similar to PepsiCo, Inc. (NYSE:PEP)’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CSCO 67 4240851 -5
PTR 10 141088 -2
RAI 33 1947876 -8
SNY 30 971198 -1

As you can see, these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $1.83 billion. That figure was $6.74 billion in PepsiCo, Inc. (NYSE:PEP)’s case. Cisco Systems, Inc. (NASDAQ:CSCO) is the most popular stock in this table. On the other hand, PetroChina Company Limited (ADR) (NYSE:PTR) is the least popular one with only 10 bullish hedge fund positions. PepsiCo, Inc. (NYSE:PEP) 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, Cisco Systems, Inc. (NASDAQ:CSCO) might be a better candidate to consider a long position.