Hedge Funds Have Never Been This Bullish On Colgate-Palmolive Company (CL)

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we publish an article with the title “Recession is Imminent: We Need A Travel Ban NOW”. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Colgate-Palmolive Company (NYSE:CL).

Is Colgate-Palmolive Company (NYSE:CL) undervalued? The smart money is turning bullish. The number of long hedge fund bets increased by 7 lately. Our calculations also showed that CL isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Today there are tons of metrics market participants can use to size up their holdings. Some of the less utilized metrics are hedge fund and insider trading activity. Our experts have shown that, historically, those who follow the top picks of the best fund managers can outclass the S&P 500 by a healthy amount (see the details here).

Ken Griffin

Ken Griffin of Citadel Investment Group

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind let’s go over the fresh hedge fund action regarding Colgate-Palmolive Company (NYSE:CL).

What have hedge funds been doing with Colgate-Palmolive Company (NYSE:CL)?

At the end of the fourth quarter, a total of 52 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 16% from one quarter earlier. By comparison, 45 hedge funds held shares or bullish call options in CL a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Colgate-Palmolive Company (NYSE:CL) was held by D E Shaw, which reported holding $398 million worth of stock at the end of September. It was followed by AQR Capital Management with a $382 million position. Other investors bullish on the company included Renaissance Technologies, VGI Partners, and GuardCap Asset Management. In terms of the portfolio weights assigned to each position VGI Partners allocated the biggest weight to Colgate-Palmolive Company (NYSE:CL), around 12% of its 13F portfolio. GuardCap Asset Management is also relatively very bullish on the stock, setting aside 7 percent of its 13F equity portfolio to CL.

As one would reasonably expect, key hedge funds were breaking ground themselves. Levin Easterly Partners, managed by John Murphy, created the most valuable position in Colgate-Palmolive Company (NYSE:CL). Levin Easterly Partners had $44.2 million invested in the company at the end of the quarter. Benjamin Pass’s TOMS Capital also initiated a $18.9 million position during the quarter. The other funds with brand new CL positions are Ken Griffin’s Citadel Investment Group, Jack Woodruff’s Candlestick Capital Management, and Greg Poole’s Echo Street Capital Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Colgate-Palmolive Company (NYSE:CL) but similarly valued. We will take a look at Northrop Grumman Corporation (NYSE:NOC), Lloyds Banking Group PLC (NYSE:LYG), Illinois Tool Works Inc. (NYSE:ITW), and Prologis Inc (NYSE:PLD). All of these stocks’ market caps are closest to CL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NOC 44 1320442 -2
LYG 5 66676 -3
ITW 32 470691 -1
PLD 35 456205 4
Average 29 578504 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $579 million. That figure was $2087 million in CL’s case. Northrop Grumman Corporation (NYSE:NOC) is the most popular stock in this table. On the other hand Lloyds Banking Group PLC (NYSE:LYG) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Colgate-Palmolive Company (NYSE:CL) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th but still managed to beat the market by 1.9 percentage points. Hedge funds were also right about betting on CL as the stock returned 2.3% so far in Q1 (through March 9th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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