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Should I Avoid Diageo plc (DEO)?

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·5 min read
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The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 866 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their March 31st holdings, data that is available nowhere else. Should you consider Diageo plc (NYSE:DEO) for your portfolio? We'll look to this invaluable collective wisdom for the answer.

Diageo plc (NYSE:DEO) has seen a decrease in hedge fund interest of late. Diageo plc (NYSE:DEO) was in 22 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 25. Our calculations also showed that DEO isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

In the 21st century investor’s toolkit there are a multitude of tools stock traders use to appraise stocks. A pair of the less known tools are hedge fund and insider trading interest. Our experts have shown that, historically, those who follow the top picks of the best investment managers can outclass the broader indices by a significant margin (see the details here). Also, our monthly newsletter's portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .

Tom Gayner
Tom Gayner

Tom Gayner of Markel Gayner Asset Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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. You can subscribe to our free daily newsletter on our homepage. With all of this in mind let's take a look at the recent hedge fund action regarding Diageo plc (NYSE:DEO).

Do Hedge Funds Think DEO Is A Good Stock To Buy Now?

Heading into the second quarter of 2021, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards DEO over the last 23 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Markel Gayner Asset Management held the most valuable stake in Diageo plc (NYSE:DEO), which was worth $221.7 million at the end of the fourth quarter. On the second spot was Orbis Investment Management which amassed $180.2 million worth of shares. Ako Capital, GAMCO Investors, and Fisher 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 Fundsmith Long/Short Fund allocated the biggest weight to Diageo plc (NYSE:DEO), around 3.15% of its 13F portfolio. Markel Gayner Asset Management is also relatively very bullish on the stock, designating 3.07 percent of its 13F equity portfolio to DEO.

Seeing as Diageo plc (NYSE:DEO) has experienced a decline in interest from hedge fund managers, it's safe to say that there were a few hedge funds that slashed their entire stakes last quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital sold off the largest stake of the "upper crust" of funds monitored by Insider Monkey, totaling an estimated $17.5 million in stock. Tom Russo's fund, Gardner Russo & Gardner, also sold off its stock, about $10.4 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 1 funds last quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Diageo plc (NYSE:DEO) but similarly valued. We will take a look at Booking Holdings Inc. (NASDAQ:BKNG), Advanced Micro Devices, Inc. (NASDAQ:AMD), Altria Group Inc (NYSE:MO), Zoom Video Communications, Inc. (NASDAQ:ZM), Stryker Corporation (NYSE:SYK), GlaxoSmithKline plc (NYSE:GSK), and Vale SA (NYSE:VALE). This group of stocks' market valuations are similar to DEO's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BKNG,103,6810305,-5 AMD,62,3703315,-12 MO,38,1109493,1 ZM,54,5672277,-5 SYK,46,3154010,2 GSK,25,1359731,-5 VALE,31,2615665,-4 Average,51.3,3489257,-4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 51.3 hedge funds with bullish positions and the average amount invested in these stocks was $3489 million. That figure was $724 million in DEO's case. Booking Holdings Inc. (NASDAQ:BKNG) is the most popular stock in this table. On the other hand GlaxoSmithKline plc (NYSE:GSK) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks Diageo plc (NYSE:DEO) is even less popular than GSK. Our overall hedge fund sentiment score for DEO is 30.4. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th but managed to beat the market by 7.7 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 17.3% since the end of March (through July 16th) and outperformed the market as well.

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