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Were Hedge Funds Right About Colgate-Palmolive Company (CL)?

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Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Colgate-Palmolive Company (NYSE:CL)? The smart money sentiment can provide an answer to this question.

Is Colgate-Palmolive Company (NYSE:CL) a superb stock to buy now? The best stock pickers were in a bullish mood. The number of bullish hedge fund positions improved by 10 in recent months. Colgate-Palmolive Company (NYSE:CL) was in 58 hedge funds' portfolios at the end of June. The all time high for this statistic was previously 53. This means the bullish number of hedge fund positions in this stock currently sits at its new all time high. Our calculations also showed that CL isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 48 hedge funds in our database with CL holdings at the end of March.

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.

Peter Rathjens Arrowstreet Capital 394
Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. We check out articles like Warren Buffett's 3 money saving tips that provide inflation and volatility hedges. We go through lists like the 10 best EV 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. Now let's go over the fresh hedge fund action regarding Colgate-Palmolive Company (NYSE:CL).

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

At Q2's end, a total of 58 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 21% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CL over the last 24 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, GuardCap Asset Management was the largest shareholder of Colgate-Palmolive Company (NYSE:CL), with a stake worth $477.7 million reported as of the end of June. Trailing GuardCap Asset Management was Arrowstreet Capital, which amassed a stake valued at $429.3 million. D E Shaw, AQR Capital Management, and Millennium 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 GuardCap Asset Management allocated the biggest weight to Colgate-Palmolive Company (NYSE:CL), around 6.9% of its 13F portfolio. Ayrshire Capital Management is also relatively very bullish on the stock, designating 1.86 percent of its 13F equity portfolio to CL.

With a general bullishness amongst the heavyweights, some big names were leading the bulls' herd. Scopus Asset Management, managed by Alexander Mitchell, initiated the largest position in Colgate-Palmolive Company (NYSE:CL). Scopus Asset Management had $56.9 million invested in the company at the end of the quarter. Brandon Haley's Holocene Advisors also made a $38.7 million investment in the stock during the quarter. The following funds were also among the new CL investors: Anand Parekh's Alyeska Investment Group, Michael Rockefeller and KarláKroeker's Woodline Partners, and Simon Sadler's Segantii Capital.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Colgate-Palmolive Company (NYSE:CL) but similarly valued. These stocks are Blackstone Inc. (NYSE:BX), HCA Healthcare Inc (NYSE:HCA), ABB Ltd (NYSE:ABB), Twilio Inc. (NYSE:TWLO), Moody's Corporation (NYSE:MCO), Banco Santander, S.A. (NYSE:SAN), and VMware, Inc. (NYSE:VMW). This group of stocks' market values resemble CL's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BX,54,2080104,5 HCA,60,2695782,-2 ABB,15,658036,4 TWLO,98,7891057,-1 MCO,44,16046255,-11 SAN,17,566333,2 VMW,28,819778,3 Average,45.1,4393906,0 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 45.1 hedge funds with bullish positions and the average amount invested in these stocks was $4394 million. That figure was $2369 million in CL's case. Twilio Inc. (NYSE:TWLO) is the most popular stock in this table. On the other hand ABB Ltd (NYSE:ABB) is the least popular one with only 15 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 65.9. 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 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 26.3% in 2021 through October 29th and beat the market again by 2.3 percentage points. Unfortunately CL wasn't nearly as popular as these 5 stocks and hedge funds that were betting on CL were disappointed as the stock returned -5.3% since the end of June (through 10/29) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 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.