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Was The Smart Money Right About Colgate-Palmolive Company (CL)?

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·6 min read
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In this article we will take a look at whether hedge funds think Colgate-Palmolive Company (NYSE:CL) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Colgate-Palmolive Company (NYSE:CL) was in 46 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 53. CL investors should pay attention to a decrease in hedge fund sentiment in recent months. There were 47 hedge funds in our database with CL holdings at the end of September. Our calculations also showed that CL isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Peter Rathjens Arrowstreet Capital 394
Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell 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 we're going to analyze the latest hedge fund action surrounding Colgate-Palmolive Company (NYSE:CL).

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

At Q4's end, a total of 46 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -2% from the previous quarter. By comparison, 52 hedge funds held shares or bullish call options in CL a year ago. With hedgies' sentiment swirling, there exists a few key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

Is CL A Good Stock To Buy?
Is CL A Good Stock To Buy?

The largest stake in Colgate-Palmolive Company (NYSE:CL) was held by GuardCap Asset Management, which reported holding $369.6 million worth of stock at the end of December. It was followed by Renaissance Technologies with a $260.7 million position. Other investors bullish on the company included AQR Capital Management, D E Shaw, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position GuardCap Asset Management allocated the biggest weight to Colgate-Palmolive Company (NYSE:CL), around 7.54% of its 13F portfolio. Ayrshire Capital Management is also relatively very bullish on the stock, setting aside 1.98 percent of its 13F equity portfolio to CL.

Since Colgate-Palmolive Company (NYSE:CL) has experienced a decline in interest from the aggregate hedge fund industry, logic holds that there were a few hedge funds that decided to sell off their entire stakes in the fourth quarter. Interestingly, Steven Boyd's Armistice Capital sold off the biggest stake of all the hedgies monitored by Insider Monkey, worth close to $23.1 million in stock. Brian Scudieri's fund, Kehrs Ridge Capital, also sold off its stock, about $5.5 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 1 funds in the fourth quarter.

Let's now review hedge fund activity in other stocks similar to Colgate-Palmolive Company (NYSE:CL). These stocks are Petroleo Brasileiro S.A. - Petrobras (NYSE:PBR), Gilead Sciences, Inc. (NASDAQ:GILD), Becton, Dickinson and Company (NYSE:BDX), KE Holdings Inc (NYSE:BEKE), Infosys Limited (NYSE:INFY), Activision Blizzard, Inc. (NASDAQ:ATVI), and China Petroleum & Chemical Corp (NYSE:SNP). This group of stocks' market values are closest to CL's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PBR,24,1335976,-7 GILD,72,2021867,11 BDX,65,3961016,3 BEKE,30,2038963,2 INFY,23,1755104,1 ATVI,81,3739018,-12 SNP,13,196413,5 Average,44,2149765,0.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 44 hedge funds with bullish positions and the average amount invested in these stocks was $2150 million. That figure was $1516 million in CL's case. Activision Blizzard, Inc. (NASDAQ:ATVI) is the most popular stock in this table. On the other hand China Petroleum & Chemical Corp (NYSE:SNP) is the least popular one with only 13 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. Our overall hedge fund sentiment score for CL is 54.3. 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. 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 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and beat the market again by 1.6 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 -4.6% since the end of December (through 4/30) 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 since 2019.

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

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