Is Mondelez International Inc. (MDLZ) A Good Stock To Buy?

It already common knowledge that there is no single correct strategy of picking high-potential stocks, but there are some ways through which investors could narrow down the pool of stocks they are interested in. Although choosing stocks based solely on specific criteria inputs seems to be a good idea when it comes to narrowing down search horizons, this method can either generate too many options or eliminate some high-potential investment opportunities. Instead, retail investors could examine the basket of stocks that receive the most attention from the hedge fund industry. It is true that the hedge fund industry as a whole has underperformed in the past several years, but the smart money can actually help individual investors find good stocks. Image for a second that a stock was owned by only 10 hedge funds at the end of September 2015 and then an additional 25 hedge funds initiated positions in that stock during the subsequent three months. This probably means that either the stock was so heavily battered by the market that it reached an extremely cheap price level or the stock was accompanied by some firm-specific developments or even industry-wide developments that caught hedge funds’ attention. Having said that, it would be worthwhile to take a look at the hedge fund sentiment on Mondelez International Inc. (NASDAQ:MDLZ) to identify whether reputable and successful top money managers continue to believe in its potential.

Is Mondelez International Inc (NASDAQ:MDLZ) a sound investment today? The best stock pickers are becoming less hopeful. The number of long hedge fund bets decreased by 12 in recent months. At the end of this article we will also compare MDLZ to other stocks, including Costco Wholesale Corporation (NASDAQ:COST), China Petroleum & Chemical Corp (ADR) (NYSE:SNP), and Ambev SA (ADR) (NYSE:ABEV) to get a better sense of its popularity.

In the eyes of most market participants, hedge funds are perceived as unimportant, outdated investment tools of yesteryear. While there are over 8000 funds trading today, We look at the top tier of this club, around 800 funds. These investment experts administer most of all hedge funds’ total asset base, and by keeping an eye on their highest performing stock picks, Insider Monkey has unsheathed a few investment strategies that have historically outperformed the broader indices. Insider Monkey’s small-cap hedge fund strategy outperformed the S&P 500 index by 12 percentage points per annum for a decade in their back tests.

Mondelez International Inc. (NASDAQ:MDLZ) is one the largest snack companies in the world that manufactures and sells snack food and beverage products in 165 countries around the globe. The company’s portfolio of products includes Nabisco, Oreo and LU biscuits; Cadbury, Cadbury Dairy Milk and Milka chocolates; Trident gum, along with an additional 51 brands. The maker of Oreo biscuits has seen its shares advance 22% over the past 12 months despite losing 6% since the beginning of 2016. Mondelez International’s net revenues in 2015 were $29.64 billion, down from $34.24 billion reported for 2014. This significant decrease was mainly driven by the strengthening U.S. dollar against most currencies around the globe. To prove my aforementioned point, the company’s organic net revenue grew 3.7% year-on-year in 2015, after registering a growth of 2.5% in the prior year.

Now, we’re going to take a look at the key action surrounding Mondelez International Inc (NASDAQ:MDLZ), as well as discuss Bill Ackman‘s thoughts on Mondelez.

Let’s now see what one of the most famous hedge fund activists in the world had to say about Mondelez International Inc. (NASDAQ:MDLZ). Although activist Bill Ackman’s Pershing Square Capital Management tumbled in 2015, he continues to be one of the best hedge fund managers in the world, so it does pay off to listen to his words. Mondelez International Inc. (NASDAQ:MDLZ) represents Mr. Ackman’s third-largest position as of the end of the fourth quarter of 2015, comprising 43.37 million shares. In a third-quarter letter to investors, highly-scrutinized Bill Ackman discussed his firm’s investment in Mondolez, saying that snack giant is “a classic Pershing Square investment in a high quality, simple, predictable business with attractive long-term growth, and multiple opportunities to create shareholder value”. The letter also said the following:

“We maintain our belief that the opportunity for productivity improvement and margin expansion at Mondelez is vast – the largest in the large cap consumer packaged goods sector. The company’s operating profit margins were 12% last year, and are estimated to be roughly 14% in 2015, well below what they can or should be given the company’s attractive categories, dominant brands, and enormous scale.”

Pershing Square also discussed its investment in Mondelez International Inc. (NASDAQ:MDLZ) in a letter to investors for the fourth quarter of 2015. Although the activist hedge fund cut its stake in the snack company during the fourth quarter, the investment firm continues to be “highly optimistic about the potential for Mondelez as it improves its operational efficiency and continues to grow while remaining an attractive merger candidate, and therefore, we expect to remain a substantial, long-term holder.”

Hedge fund activity in Mondelez International Inc (NASDAQ:MDLZ)

At the end of the fourth quarter, a total of 57 of the hedge funds tracked by Insider Monkey were long this stock, a decline of 17% from the previous quarter. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Nelson Peltz’s Trian Partners has the number one position in Mondelez International Inc (NASDAQ:MDLZ), worth close to $2.15 billion, amounting to 17.5% of its total 13F portfolio. On Trian Partners’s heels is Pershing Square, led by Bill Ackman, holding a $1.94 billion position; the fund has 15.6% of its 13F portfolio invested in the stock. The remaining members of the smart money that hold long positions contain Boykin Curry’s Eagle Capital Management, Lei Zhang’s Hillhouse Capital Management and First Eagle Investment Management.

Because Mondelez International Inc (NASDAQ:MDLZ) has experienced a declining sentiment from the aggregate hedge fund industry, we can see that there were a few hedge funds who sold off their entire stakes in the fourth quarter. It’s worth mentioning that Daniel S. Och’s OZ Management dropped the largest stake of the “upper crust” of funds tracked by Insider Monkey, which comprised 3.48 million shares. This move is intriguing to say the least, as total hedge fund interest dropped by 12 funds during the last three months of 2015.

The next page of this article reveals the hedge fund activity in other companies that have market values similar to MDLZ.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Mondelez International Inc (NASDAQ:MDLZ) but similarly valued. We will take a look at Costco Wholesale Corporation (NASDAQ:COST), China Petroleum & Chemical Corp (ADR) (NYSE:SNP), Ambev SA (ADR) (NYSE:ABEV), and Banco Santander, S.A. (ADR) (NYSE:SAN). This group of stocks’ market values match MDLZ’s market value.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $660 million. That figure was $6.66 billion in MDLZ’s case. Costco Wholesale Corporation (NASDAQ:COST) is the most popular stock in this table. On the other hand China Petroleum & Chemical Corp (ADR) (NYSE:SNP) is the least popular one with only eight bullish hedge fund positions. Compared to these stocks Mondelez International Inc (NASDAQ:MDLZ) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

Disclosure: None