Is Diageo plc (DEO) A Good Stock To Buy?

The 700+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the first quarter, which unveil their equity positions as of March 31. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Diageo plc (NYSE:DEO).

Diageo plc (NYSE:DEO) investors should be aware of an increase in activity from the world’s largest hedge funds lately. DEO was in 16 hedge funds’ portfolios at the end of the first quarter of 2019. There were 14 hedge funds in our database with DEO positions at the end of the previous quarter. Our calculations also showed that DEO isn’t among the 30 most popular stocks among hedge funds.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Tom Gayner

Let’s take a gander at the new hedge fund action regarding Diageo plc (NYSE:DEO).

What have hedge funds been doing with Diageo plc (NYSE:DEO)?

Heading into the second quarter of 2019, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from the previous quarter. By comparison, 17 hedge funds held shares or bullish call options in DEO a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.


Among these funds, Gardner Russo & Gardner held the most valuable stake in Diageo plc (NYSE:DEO), which was worth $255.6 million at the end of the first quarter. On the second spot was Markel Gayner Asset Management which amassed $220.8 million worth of shares. Moreover, GAMCO Investors, Renaissance Technologies, and Arrowstreet Capital were also bullish on Diageo plc (NYSE:DEO), allocating a large percentage of their portfolios to this stock.

As industrywide interest jumped, key money managers were breaking ground themselves. Circle Road Advisors, managed by Ilan Assouline, created the most valuable position in Diageo plc (NYSE:DEO). Circle Road Advisors had $4.3 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also initiated a $2.4 million position during the quarter. The other funds with new positions in the stock are Michael Gelband’s ExodusPoint Capital, Michael Platt and William Reeves’s BlueCrest Capital Mgmt., and Mike Vranos’s Ellington.

Let’s also examine hedge fund activity in other stocks similar to Diageo plc (NYSE:DEO). These stocks are China Petroleum & Chemical Corp (NYSE:SNP), United Parcel Service, Inc. (NYSE:UPS), Linde plc (NYSE:LIN), and British American Tobacco plc (NYSEAMEX:BTI). This group of stocks’ market valuations match DEO’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SNP 13 250613 -2
UPS 37 1006858 5
LIN 37 1629340 0
BTI 15 316057 5
Average 25.5 800717 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $801 million. That figure was $862 million in DEO’s case. United Parcel Service, Inc. (NYSE:UPS) is the most popular stock in this table. On the other hand China Petroleum & Chemical Corp (NYSE:SNP) is the least popular one with only 13 bullish hedge fund positions. Diageo plc (NYSE:DEO) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on DEO, though not to the same extent, as the stock returned 5.2% during the same time frame and outperformed the market as well.

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