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Hedge Funds Are Crazy About The Coca-Cola Company (KO)

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 8 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in The Coca-Cola Company (NYSE:KO).

The Coca-Cola Company (NYSE:KO) investors should be aware of an increase in activity from the world’s largest hedge funds lately. Our calculations also showed that KO isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Phill Gross of Adage Capital Management

Phill Gross of Adage Capital Management

Let’s take a gander at the key hedge fund action encompassing The Coca-Cola Company (NYSE:KO).

What does smart money think about The Coca-Cola Company (NYSE:KO)?

Heading into the fourth quarter of 2019, a total of 50 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards KO over the last 17 quarters. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

KO_nov2019

The largest stake in The Coca-Cola Company (NYSE:KO) was held by Berkshire Hathaway, which reported holding $21776 million worth of stock at the end of September. It was followed by Yacktman Asset Management with a $549.2 million position. Other investors bullish on the company included Adage Capital Management, GQG Partners, and Alkeon Capital Management. In terms of the portfolio weights assigned to each position Berkshire Hathaway allocated the biggest weight to The Coca-Cola Company (NYSE:KO), around 10.14% of its portfolio. Yacktman Asset Management is also relatively very bullish on the stock, dishing out 6.75 percent of its 13F equity portfolio to KO.

As industrywide interest jumped, key hedge funds were leading the bulls’ herd. Laurion Capital Management, managed by Benjamin A. Smith, assembled the most valuable call position in The Coca-Cola Company (NYSE:KO). Laurion Capital Management had $15.7 million invested in the company at the end of the quarter. Matthew Tewksbury’s Stevens Capital Management also made a $14.2 million investment in the stock during the quarter. The other funds with new positions in the stock are David Costen Haley’s HBK Investments, Parvinder Thiara’s Athanor Capital, and Karim Abbadi and Edward McBride’s Centiva Capital.

Let’s also examine hedge fund activity in other stocks similar to The Coca-Cola Company (NYSE:KO). We will take a look at Intel Corporation (NASDAQ:INTC), Chevron Corporation (NYSE:CVX), Wells Fargo & Company (NYSE:WFC), and Merck & Co., Inc. (NYSE:MRK). This group of stocks’ market caps resemble KO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
INTC 58 4800111 15
CVX 48 1775593 4
WFC 62 25231139 -3
MRK 73 4568239 3
Average 60.25 9093771 4.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 60.25 hedge funds with bullish positions and the average amount invested in these stocks was $9094 million. That figure was $23639 million in KO’s case. Merck & Co., Inc. (NYSE:MRK) is the most popular stock in this table. On the other hand Chevron Corporation (NYSE:CVX) is the least popular one with only 48 bullish hedge fund positions. The Coca-Cola Company (NYSE:KO) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately KO wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); KO investors were disappointed as the stock returned -2.6% during the fourth quarter (through 11/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

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

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