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Were Hedge Funds Right About Piling Into Colgate-Palmolive Company (CL)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Colgate-Palmolive Company (NYSE:CL) and determine whether hedge funds skillfully traded this stock.

Colgate-Palmolive Company (NYSE:CL) shareholders have witnessed an increase in activity from the world’s largest hedge funds recently. CL was in 53 hedge funds’ portfolios at the end of March. There were 52 hedge funds in our database with CL holdings at the end of the previous quarter. Our calculations also showed that CL 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.

According to most stock holders, hedge funds are viewed as worthless, old financial tools of the past. While there are over 8000 funds with their doors open at the moment, Our experts choose to focus on the crème de la crème of this group, around 850 funds. These money managers direct the majority of all hedge funds’ total capital, and by shadowing their inimitable picks, Insider Monkey has found many investment strategies that have historically exceeded the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Donald Yacktman of Yacktman Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a look at the key hedge fund action regarding Colgate-Palmolive Company (NYSE:CL).

What does smart money think about Colgate-Palmolive Company (NYSE:CL)?

At the end of the first quarter, a total of 53 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 2% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CL over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is CL A Good Stock To Buy?

More specifically, Renaissance Technologies was the largest shareholder of Colgate-Palmolive Company (NYSE:CL), with a stake worth $466.1 million reported as of the end of September. Trailing Renaissance Technologies was D E Shaw, which amassed a stake valued at $288.9 million. AQR Capital Management, GuardCap Asset Management, and Yacktman Asset Management 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 VGI Partners allocated the biggest weight to Colgate-Palmolive Company (NYSE:CL), around 8.48% of its 13F portfolio. GuardCap Asset Management is also relatively very bullish on the stock, designating 8.36 percent of its 13F equity portfolio to CL.

As industrywide interest jumped, some big names were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the largest position in Colgate-Palmolive Company (NYSE:CL). Arrowstreet Capital had $52.4 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also made a $28.6 million investment in the stock during the quarter. The following funds were also among the new CL investors: Guy Shahar’s DSAM Partners, Steven Boyd’s Armistice Capital, and Joseph Samuels’s Islet Management.

Let’s go over hedge fund activity in other stocks similar to Colgate-Palmolive Company (NYSE:CL). We will take a look at Rio Tinto Group (NYSE:RIO), Zoetis Inc (NYSE:ZTS), Canadian National Railway Company (NYSE:CNI), and Booking Holdings Inc. (NASDAQ:BKNG). All of these stocks’ market caps match CL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RIO 20 1108363 -1
ZTS 60 1775801 12
CNI 26 1605797 -3
BKNG 90 4914673 16
Average 49 2351159 6

View table here if you experience formatting issues.

As you can see these stocks had an average of 49 hedge funds with bullish positions and the average amount invested in these stocks was $2351 million. That figure was $1865 million in CL’s case. Booking Holdings Inc. (NASDAQ:BKNG) is the most popular stock in this table. On the other hand Rio Tinto Group (NYSE:RIO) is the least popular one with only 20 bullish hedge fund positions. Colgate-Palmolive Company (NYSE:CL) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately CL wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CL were disappointed as the stock returned 11.1% during the same time period 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 many of these stocks already outperformed the market so far this year.

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