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Hedge Funds Are Selling PepsiCo, Inc. (PEP). Is it Going to Fizz Out?

Legendary investors such as Leon Cooperman and Ken Fisher earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don’t publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That’s why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze PepsiCo, Inc. (NYSE:PEP) from the perspective of those elite funds.

Hedge funds continued to sell PepsiCo, Inc. (NYSE:PEP) in Q2, the 3rd consecutive quarter of declining ownership of the stock. The beverage and snack company does have many bulls though, including being one of Billionaire Ken Fisher’s Top Stock Picks Heading Into 2019, owning an ominous 6.66 million shares of the company as of September 30. The famous investor and bestselling author has owned PepsiCo, Inc. (NASDAQ:PEP) dating all the way back to the third quarter of 2001.

To the average investor there are numerous signals stock market investors have at their disposal to analyze stocks. Two of the most useful signals are hedge fund and insider trading interest. We have shown that, historically, those who follow the best picks of the best investment managers can outperform the S&P 500 by a superb amount (see the details here).

Donald Yacktman

How are hedge funds trading PepsiCo, Inc. (NYSE:PEP)?

At Q2’s end, a total of 43 of the hedge funds tracked by Insider Monkey held long positions in this stock, a 9% drop from one quarter earlier. By comparison, 52 hedge funds held shares or bullish call options in PEP heading a year earlier. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

PEP_nov2018

The largest stake in PepsiCo, Inc. (NYSE:PEP) was held by Yacktman Asset Management, which reported holding $854.9 million worth of stock as of the end of June. It was followed by Renaissance Technologies with a $758 million position. Other investors bullish on the company included Hoplite Capital Management, Pittencrieff Partners – Gabalex Capital, and Diamond Hill Capital.

Because PepsiCo, Inc. (NYSE:PEP) has experienced bearish sentiment from the aggregate hedge fund industry, logic holds that there is a sect of hedgies who were dropping their entire stakes heading into Q3. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dropped the biggest stake of the 700 funds monitored by Insider Monkey, worth close to $378.2 million in call options, and Robert Pohly’s Samlyn Capital was right behind this move, as the fund dropped about $21.8 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 4 funds heading into Q3.

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. These stocks are Unilever N.V. (ADR) (NYSE:UN), DowDuPont Inc. (NYSE:DWDP), BP plc (ADR) (NYSE:BP), and Unilever plc (ADR) (NYSE:UL). All of these stocks’ market caps match PEP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
UN 14 1173258 3
DWDP 75 5801593 -5
BP 36 1790081 8
UL 13 169094 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 $2.23 billion. That figure was $3.81 billion in PEP’s case. DowDuPont Inc. (NYSE:DWDP) is the most popular stock in this table. On the other hand Unilever plc (ADR) (NYSE:UL) is the least popular one with only 13 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, but falling fast. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard DWDP might be a better candidate to consider a long position in.

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

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