Colgate-Palmolive (CL) Has Risen 5% in Last One Year, Underperforms Market

If you are looking for the best ideas for your portfolio you may want to consider some of VGI Partners top stock picks. VGI Partners, an investment management firm, is bullish on Colgate Palmolive Co (NYSE:CL) stock. In its FY 2019 investor letter – you can download a copy here – the firm discussed its investment thesis on Colgate Palmolive Co (NYSE:CL) stock. Colgate Palmolive Co (NYSE:CL) is a consumer product company.

On July 30, 2019, VGI Partners had released its FY 2019 investor letter. Colgate Palmolive Co (NYSE:CL) stock has posted a return of 5.0% in the trailing one year period, underperforming the S&P 500 Index which returned 12.5% in the same period. This suggests that the investment firm was wrong in its decision. On a year-to-date basis, Colgate Palmolive Co (NYSE:CL) stock has risen by 12.1%.

In its FY 2019 investor letter, the firm reported that VGI Partners Global Investments Limited generated a 10.2% net return. Let’s take a look at comments made by VGI Partners about Colgate Palmolive Co (NYSE:CL) stock in the Q2 2019 investor letter.

“Colgate-Palmolive Company (NYSE: CL): Colgate contributed +1.1% to performance for the twelve months to 30 June 2019, with the share price increasing 10.6% over the course of the year. In addition, Colgate paid us dividends of $1.69, for a dividend yield of 2.4%.

Founded in 1806 in New York City by William Colgate as a soap and candle business, Colgate- For personal use only Palmolive has grown into one of the world’s largest consumer products companies.

Colgate has a large international exposure with 70% of its revenue generated from outside the US, including 50% from high growth emerging markets. Colgate’s global market share of toothpaste is a staggering 42%, up from 35% in 1995. The below chart also shows that Colgate’s global market share today is almost three times its nearest competitor. The brand’s share of some of the largest emerging markets is even higher, with Brazil at 72% and India at 50%.

Colgate’s high share of the toothpaste market in these geographies owes a great deal to the company’s decision to set up distribution early, providing a first-mover advantage. Market shares in toothpaste are generally quite stable as consumers show strong loyalty to the brand of toothpaste they grew up with. We believe Colgate’s emerging market exposure is a significant positive over the For personal use only long-term as growth in population and disposable income outpaces that of developed markets.

Colgate follows a strategy of long term premiumisation. Once it has established a leading market position, it slowly but steadily introduces superior products at a higher price point and gross margin. This progression is almost too slow to be noticed by customers but over many years has led to significant gross margin expansion for the business. Remember the original plain red tube of Colgate toothpaste that contained no teeth whitening, mint stripes or sensitive pain relief? You can still buy this at the local supermarket at a relatively low price, however Colgate has most likely traded you up to one of their more expensive products.

In addition to oral care products, Colgate owns the Hill’s Pet Nutrition business which is a global leader in specialty pet foods and sells under the Hill’s Science Diet™ and Hill’s Prescription Diet™ brands among others. If you have a dog or cat at home, you may recognise these as brands that vets recommend – vets are to pet food today what dentists were to toothpaste 40 years ago. This is a terrific business that benefits from the secular trend of higher pet ownership and greater expenditure on ‘companion animals’ in developed markets.

Colgate generates extraordinary returns on both equity and capital without the use of any material leverage. It has one of the highest tax rates of its peers, which we expect to come down over time. Colgate is also one of the most consistent dividend paying stocks globally. In fact, Colgate has paid an uninterrupted dividend since 1895, even throughout the Great Depression; that’s 124 years of consecutive dividends. On top of this it has increased its annual dividend payment in each of the past 56 years. This is our kind of business!”

In Q2 2020, the number of bullish hedge fund positions on Colgate Palmolive Co (NYSE:CL) stock decreased by about 6% from the previous quarter (see the chart here), so a number of other hedge fund managers don’t seem to agree with Colgate Palmolive’s growth potential. Our calculations showed that Colgate Palmolive Co (NYSE:CL) isn’t ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

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