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How Did Colgate-Palmolive Company (CL) Perform In Comparison to Hedge Fund Favorites in 2019?

Debasis Saha

Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 57%. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 41.1% in 2019 (through December 23rd) and outperformed the broader market benchmark by 10.1 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Colgate-Palmolive Company (NYSE:CL) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 42 hedge funds' portfolios at the end of the third quarter of 2019. At the end of this article we will also compare CL to other stocks including Equinor ASA (NYSE:EQNR), Enterprise Products Partners L.P. (NYSE:EPD), and PNC Financial Services Group Inc. (NYSE:PNC) to get a better sense of its popularity.

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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 stocks that are in our short portfolio.

[caption id="attachment_30621" align="alignnone" width="600"] Cliff Asness of AQR Capital Management[/caption]

AQR CAPITAL MANAGEMENT

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. With all of this in mind let's go over the key hedge fund action encompassing Colgate-Palmolive Company (NYSE:CL).

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

At Q3's end, a total of 42 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards CL over the last 17 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

Is CL A Good Stock To Buy?

More specifically, AQR Capital Management was the largest shareholder of Colgate-Palmolive Company (NYSE:CL), with a stake worth $431.7 million reported as of the end of September. Trailing AQR Capital Management was Renaissance Technologies, which amassed a stake valued at $335.4 million. D E Shaw, Alkeon Capital Management, and VGI Partners 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 12.55% of its 13F portfolio. GuardCap Asset Management is also relatively very bullish on the stock, designating 5.89 percent of its 13F equity portfolio to CL.

Judging by the fact that Colgate-Palmolive Company (NYSE:CL) has faced declining sentiment from hedge fund managers, it's safe to say that there lies a certain "tier" of fund managers that slashed their full holdings heading into Q4. Intriguingly, George Soros's Soros Fund Management dumped the biggest stake of the 750 funds monitored by Insider Monkey, comprising close to $19.7 million in stock. Ken Griffin's fund, Citadel Investment Group, also said goodbye to its stock, about $17.6 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Colgate-Palmolive Company (NYSE:CL) but similarly valued. These stocks are Equinor ASA (NYSE:EQNR), Enterprise Products Partners L.P. (NYSE:EPD), PNC Financial Services Group Inc. (NYSE:PNC), and Intuitive Surgical, Inc. (NASDAQ:ISRG). This group of stocks' market valuations match CL's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EQNR,14,392283,1 EPD,21,301985,2 PNC,39,2074279,1 ISRG,41,1400552,4 Average,28.75,1042275,2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $1042 million. That figure was $2061 million in CL's case. Intuitive Surgical, Inc. (NASDAQ:ISRG) is the most popular stock in this table. On the other hand Equinor ASA (NYSE:EQNR) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Colgate-Palmolive Company (NYSE:CL) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately CL wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CL were disappointed as the stock returned 18.4% so far in 2019 (through 12/23) and trailed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 65 percent of these stocks already outperformed the market in 2019. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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