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Hedge Fund Favorites vs. The Clorox Company (CLX) In 2019

Debasis Saha

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren't usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index's returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you'd fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 10 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That's why we are going to go over recent hedge fund activity in The Clorox Company (NYSE:CLX).

The Clorox Company (NYSE:CLX) investors should be aware of an increase in enthusiasm from smart money recently. CLX was in 32 hedge funds' portfolios at the end of September. There were 28 hedge funds in our database with CLX positions at the end of the previous quarter. Our calculations also showed that CLX isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_26073" align="alignnone" width="600"] Jim Simons of Renaissance Technologies[/caption]

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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 we're going to take a look at the latest hedge fund action encompassing The Clorox Company (NYSE:CLX).

Hedge fund activity in The Clorox Company (NYSE:CLX)

At Q3's end, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of 14% from the previous quarter. By comparison, 22 hedge funds held shares or bullish call options in CLX a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

Is CLX A Good Stock To Buy?

More specifically, Cedar Rock Capital was the largest shareholder of The Clorox Company (NYSE:CLX), with a stake worth $416.7 million reported as of the end of September. Trailing Cedar Rock Capital was Renaissance Technologies, which amassed a stake valued at $181.4 million. AQR Capital Management, Winton Capital Management, and Citadel Investment Group 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 Clorox Company (NYSE:CLX), around 9.66% of its 13F portfolio. Cognios Capital is also relatively very bullish on the stock, dishing out 0.87 percent of its 13F equity portfolio to CLX.

As one would reasonably expect, key money managers have jumped into The Clorox Company (NYSE:CLX) headfirst. Laurion Capital Management, managed by Benjamin A. Smith, created the most outsized position in The Clorox Company (NYSE:CLX). Laurion Capital Management had $13.6 million invested in the company at the end of the quarter. Donald Sussman's Paloma Partners also initiated a $7.3 million position during the quarter. The other funds with new positions in the stock are John Overdeck and David Siegel's Two Sigma Advisors, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, and Minhua Zhang's Weld Capital Management.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as The Clorox Company (NYSE:CLX) but similarly valued. These stocks are Cincinnati Financial Corporation (NASDAQ:CINF), CGI Group Inc. (NYSE:GIB), Liberty Broadband Corp (NASDAQ:LBRDK), and Liberty Broadband Corp (NASDAQ:LBRDA). This group of stocks' market valuations resemble CLX's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CINF,23,565077,5 GIB,14,300448,0 LBRDK,40,3494094,0 LBRDA,21,694238,1 Average,24.5,1263464,1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $1263 million. That figure was $1005 million in CLX's case. Liberty Broadband Corp (NASDAQ:LBRDK) is the most popular stock in this table. On the other hand CGI Group Inc. (NYSE:GIB) is the least popular one with only 14 bullish hedge fund positions. The Clorox Company (NYSE:CLX) 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 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 CLX wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CLX were disappointed as the stock returned 1.4% in 2019 (through December 23rd) and underperformed 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 many of these stocks already outperformed the market so far this year. 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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