Hedge Funds Cashing Out Of PepsiCo, Inc. (PEP)

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of PepsiCo, Inc. (NYSE:PEP).

PepsiCo, Inc. (NYSE:PEP) investors should pay attention to a decrease in hedge fund sentiment lately. Our calculations also showed that PEP isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: 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 monthly stock picks returned 72% since March 2017 and outperformed the S&P 500 ETFs by more than 44 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.

Steven Cohen of Point72 Asset Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, legendary investor Bill Miller told investors to sell 7 extremely popular recession stocks last month. So, we went through his list and recommended another stock with 100% upside potential instead. We interview hedge fund managers and ask them about their best ideas. You can watch our latest hedge fund manager interview here and find out the name of the large-cap healthcare stock that Sio Capital’s Michael Castor expects to double. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a gander at the recent hedge fund action surrounding PepsiCo, Inc. (NYSE:PEP).

How have hedgies been trading PepsiCo, Inc. (NASDAQ:PEP)?

At the end of the first quarter, a total of 57 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -3% from the previous quarter. On the other hand, there were a total of 51 hedge funds with a bullish position in PEP a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the largest position in PepsiCo, Inc. (NASDAQ:PEP). AQR Capital Management has a $667.8 million position in the stock, comprising 1.1% of its 13F portfolio. On AQR Capital Management’s heels is Donald Yacktman of Yacktman Asset Management, with a $406.1 million position; the fund has 6.7% of its 13F portfolio invested in the stock. Other members of the smart money with similar optimism include Ric Dillon’s Diamond Hill Capital, D. E. Shaw’s D E Shaw and Phill Gross and Robert Atchinson’s Adage Capital Management. In terms of the portfolio weights assigned to each position Yacktman Asset Management allocated the biggest weight to PepsiCo, Inc. (NASDAQ:PEP), around 6.73% of its 13F portfolio. Candlestick Capital Management is also relatively very bullish on the stock, dishing out 2.81 percent of its 13F equity portfolio to PEP.

Judging by the fact that PepsiCo, Inc. (NASDAQ:PEP) has witnessed falling interest from the entirety of the hedge funds we track, we can see that there were a few hedge funds who sold off their full holdings by the end of the third quarter. Intriguingly, Michael Kharitonov and Jon David McAuliffe’s Voleon Capital dumped the largest position of all the hedgies watched by Insider Monkey, totaling close to $32.5 million in stock. Matthew Tewksbury’s fund, Stevens Capital Management, also said goodbye to its stock, about $9.7 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 2 funds by the end of the third quarter.

Let’s check out hedge fund activity in other stocks similar to PepsiCo, Inc. (NASDAQ:PEP). These stocks are Cisco Systems, Inc. (NASDAQ:CSCO), Netflix, Inc. (NASDAQ:NFLX), NVIDIA Corporation (NASDAQ:NVDA), and Exxon Mobil Corporation (NYSE:XOM). All of these stocks’ market caps resemble PEP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CSCO 58 2531778 -10
NFLX 109 13648064 -5
NVDA 95 4127764 16
XOM 65 1295305 2
Average 81.75 5400728 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 81.75 hedge funds with bullish positions and the average amount invested in these stocks was $5401 million. That figure was $2820 million in PEP’s case. Netflix, Inc. (NASDAQ:NFLX) is the most popular stock in this table. On the other hand Cisco Systems, Inc. (NASDAQ:CSCO) is the least popular one with only 58 bullish hedge fund positions. Compared to these stocks PepsiCo, Inc. (NASDAQ:PEP) is even less popular than CSCO. Hedge funds dodged a bullet by taking a bearish stance towards PEP. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 7.9% in 2020 through May 22nd but managed to beat the market by 15.6 percentage points. Unfortunately PEP wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); PEP investors were disappointed as the stock returned 8.6% during the second quarter (through May 22nd) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

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