Five Consumer Non-Durables Stocks That Hedge Funds Love

After nine years of keeping the interest rates unchanged, the US Federal Reserve finally hiked interest rates by 0.25 percentage points last month. While experts believe that the rate hike will impact the consumer durable and non-durable sectors in the US, the effect is expected to be marginal. Moreover, most analysts believe that this time the rate-hike cycle would be quite gentle compared to the past, such that it won’t negatively affect consumer spending in the short to medium-term. With this in mind, we have compiled a list of the top consumer non-durables stocks based on the number of hedge funds out of the 730 funds we cover that had long position in them at the end of September. Read further to know which are the five stocks that topped our list this time around.

An everyday investor does not have the time or the required skill-set to carry out an in-depth analysis of equities and identify companies with the best future prospects like a fund with the knowledge and resources of Visium can. However, it is also not a good idea to pay the egregiously high fees that investment firms charge for their stock picking expertise. Thus a retail investor is better off to monkey the most popular stock picks among hedge funds by him or herself. But not just any picks mind you. Our research has shown that a portfolio based on hedge funds’ top stock picks (which are invariably comprised entirely of large-cap companies) falls considerably short of a portfolio based on their best small-cap stock picks. The most popular large-cap stocks among hedge funds underperformed the market by an average of seven basis points per month in our back tests, whereas the 15 most popular small-cap stock picks among hedge funds outperformed the market by nearly a percentage point per month over the same period between 1999 and 2012 (read the details here).

#5 PepsiCo, Inc. (NYSE:PEP)

– Hedge Funds with Long Positions (as of September 30): 57

– Aggregate Value of Hedge Funds’ Holdings (as of September 30): $6.74 billion

After trading in the $90-$100 range for over a year, shares of the food and beverage giant PepsiCo, Inc. (NYSE:PEP) broke the coveted $100 figure for the first time recently, but have again gone back to trading below that level. Despite being a behemoth with a market capitalization of over $100 billion, PepsiCo, Inc. (NYSE:PEP)’s current annual dividend yield of  2.90% is better than what several small- and medium-sized companies sport.

Notwithstanding the recent decline, shares of PepsiCo currently trade at forward price to earnings multiple of 20.08 and price to book multiple of 10.49, which is significantly above its historical average. Last month the company made a series of announcement targeted at health-conscious consumers. However, health experts are skeptical about whether the company actually intends to make its products healthier or if it’s just a PR gimmick, which they believe can backfire.

PepsiCo is expected to report its fiscal 2015 fourth-quarter earnings early next month. Analysts estimate that the company will be reporting EPS of $1.06 on revenue of $18.61 billion for the quarter, lower than the EPS of $1.12 on revenue of $19.95 billion it had reported for the same quarter a year earlier. Of the 26 major brokerages and analysts who cover the stock, the majority have an ‘Overweight’ rating. Ken Griffin‘s Citadel Investment Group nearly doubled its stake in PepsiCo, Inc. to 3.6 million shares during the July-September period.