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Is The Procter & Gamble (PG) A Good Stock To Buy?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of The Procter & Gamble Company (NYSE:PG) based on that data and determine whether they were really smart about the stock.

The Procter & Gamble Company (NYSE:PG) was in 73 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 79. PG investors should pay attention to a decrease in enthusiasm from smart money recently. There were 77 hedge funds in our database with PG holdings at the end of March. Our calculations also showed that PG isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 S&P 500 ETFs by 58 percentage points since March 2017 (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.

TRIAN PARTNERS

Nelson Peltz of Trian Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Currently, investors are pessimistic about commercial real estate investments. So, we are checking out this contrarian play to diversify our market exposure. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let’s view the fresh hedge fund action encompassing The Procter & Gamble Company (NYSE:PG).

How are hedge funds trading The Procter & Gamble Company (NYSE:PG)?

At second quarter’s end, a total of 73 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the previous quarter. On the other hand, there were a total of 58 hedge funds with a bullish position in PG 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.

More specifically, Cedar Rock Capital was the largest shareholder of The Procter & Gamble Company (NYSE:PG), with a stake worth $1329 million reported as of the end of September. Trailing Cedar Rock Capital was Trian Partners, which amassed a stake valued at $1294.4 million. D E Shaw, AQR Capital Management, and Arrowstreet Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Cedar Rock Capital allocated the biggest weight to The Procter & Gamble Company (NYSE:PG), around 32.33% of its 13F portfolio. Trian Partners is also relatively very bullish on the stock, setting aside 26.83 percent of its 13F equity portfolio to PG.

Due to the fact that The Procter & Gamble Company (NYSE:PG) has faced bearish sentiment from hedge fund managers, logic holds that there exists a select few hedgies who were dropping their entire stakes heading into Q3. At the top of the heap, Sander Gerber’s Hudson Bay Capital Management said goodbye to the biggest position of all the hedgies followed by Insider Monkey, valued at an estimated $6.3 million in stock. Benjamin A. Smith’s fund, Laurion Capital Management, also sold off its stock, about $5.1 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 4 funds heading into Q3.

Let’s go over hedge fund activity in other stocks similar to The Procter & Gamble Company (NYSE:PG). These stocks are Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), JPMorgan Chase & Co. (NYSE:JPM), UnitedHealth Group Inc. (NYSE:UNH), The Home Depot, Inc. (NYSE:HD), Intel Corporation (NASDAQ:INTC), NVIDIA Corporation (NASDAQ:NVDA), and Verizon Communications Inc. (NYSE:VZ). This group of stocks’ market caps match PG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TSM 58 5209772 4
JPM 123 8732467 11
UNH 96 8326373 -8
HD 85 4642557 -2
INTC 78 6480425 5
NVDA 92 5548398 -3
VZ 68 2973925 0
Average 85.7 5987702 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 85.7 hedge funds with bullish positions and the average amount invested in these stocks was $5988 million. That figure was $9244 million in PG’s case. JPMorgan Chase & Co. (NYSE:JPM) is the most popular stock in this table. On the other hand Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is the least popular one with only 58 bullish hedge fund positions. The Procter & Gamble Company (NYSE:PG) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for PG is 40.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 28.2% in 2020 through August 24th and still beat the market by 20.6 percentage points. A small number of hedge funds were also right about betting on PG as the stock returned 16.6% since the end of June and outperformed the market by an even larger margin.

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