At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Philip Morris International Inc. (NYSE:PM) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Philip Morris International Inc. (NYSE:PM) has experienced an increase in support from the world's most elite money managers in recent months as the U.S. dollar started losing its value. Hedge funds are probably betting on stronger USD denominated earnings in the coming quarters. Philip Morris International Inc. (NYSE:PM) was in 53 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 60. There were 48 hedge funds in our database with PM holdings at the end of March. Our calculations also showed that PM 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.
In the 21st century investor’s toolkit there are a large number of metrics shareholders use to analyze their holdings. A couple of the most under-the-radar metrics are hedge fund and insider trading activity. We have shown that, historically, those who follow the best picks of the top fund managers can beat the broader indices by a superb margin (see the details here).
Rajiv Jain of GQG Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. 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 precious metals prices. So, we are checking out this junior gold mining stock.. 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. With all of this in mind let's view the recent hedge fund action surrounding Philip Morris International Inc. (NYSE:PM).
How have hedgies been trading Philip Morris International Inc. (NYSE:PM)?
At second quarter's end, a total of 53 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from one quarter earlier. By comparison, 39 hedge funds held shares or bullish call options in PM a year ago. With the smart money's sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
More specifically, Cedar Rock Capital was the largest shareholder of Philip Morris International Inc. (NYSE:PM), with a stake worth $686 million reported as of the end of September. Trailing Cedar Rock Capital was Gardner Russo & Gardner, which amassed a stake valued at $578 million. Ariel Investments, GQG Partners, and AQR Capital 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 Cedar Rock Capital allocated the biggest weight to Philip Morris International Inc. (NYSE:PM), around 16.69% of its 13F portfolio. Gardner Russo & Gardner is also relatively very bullish on the stock, dishing out 5.87 percent of its 13F equity portfolio to PM.
Now, some big names were leading the bulls' herd. Point72 Asset Management, managed by Steve Cohen, assembled the largest position in Philip Morris International Inc. (NYSE:PM). Point72 Asset Management had $29.2 million invested in the company at the end of the quarter. Matthew Tewksbury's Stevens Capital Management also initiated a $7.6 million position during the quarter. The other funds with brand new PM positions are Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Jinghua Yan's TwinBeech Capital, and Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Philip Morris International Inc. (NYSE:PM) but similarly valued. These stocks are International Business Machines Corp. (NYSE:IBM), Citigroup Inc. (NYSE:C), Charter Communications, Inc. (NASDAQ:CHTR), Wells Fargo & Company (NYSE:WFC), BHP Group (NYSE:BBL), The Boeing Company (NYSE:BA), and PetroChina Company Limited (NYSE:PTR). This group of stocks' market caps are closest to PM's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IBM,46,918051,5 C,96,6229205,10 CHTR,96,11227561,-8 WFC,86,10344809,10 BBL,22,919411,1 BA,39,1280437,-15 PTR,6,63660,-1 Average,55.9,4426162,0.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 55.9 hedge funds with bullish positions and the average amount invested in these stocks was $4426 million. That figure was $2575 million in PM's case. Citigroup Inc. (NYSE:C) is the most popular stock in this table. On the other hand PetroChina Company Limited (NYSE:PTR) is the least popular one with only 6 bullish hedge fund positions. Philip Morris International Inc. (NYSE:PM) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for PM is 62.6. 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 33% in 2020 through the end of August and beat the market by 23.2 percentage points. A small number of hedge funds were also right about betting on PM, though not to the same extent, as the stock returned 13.9% during the first two months of Q3 and outperformed the market.
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Disclosure: None. This article was originally published at Insider Monkey.