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Were Hedge Funds Right About Mondelez International Inc (MDLZ)?

Reymerlyn Martin
·7 min read

Is Mondelez International Inc (NASDAQ:MDLZ) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Hedge fund interest in Mondelez International Inc (NASDAQ:MDLZ) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that MDLZ 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). The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Altria Group Inc (NYSE:MO), Zoom Video Communications, Inc. (NASDAQ:ZM), and Becton, Dickinson and Company (NYSE:BDX) to gather more data points. Our calculations also showed that MDLZ 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.

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 S&P 500 ETFs by more than 56 percentage points since March 2017 (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.

TRIAN PARTNERS
TRIAN PARTNERS

Nelson Peltz of Trian Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind we're going to take a look at the latest hedge fund action regarding Mondelez International Inc (NASDAQ:MDLZ).

What does smart money think about Mondelez International Inc (NASDAQ:MDLZ)?

Heading into the third quarter of 2020, a total of 54 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in MDLZ over the last 20 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Mondelez International Inc (NASDAQ:MDLZ) was held by Trian Partners, which reported holding $810.4 million worth of stock at the end of September. It was followed by Diamond Hill Capital with a $388.9 million position. Other investors bullish on the company included D E Shaw, Two Sigma Advisors, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Trian Partners allocated the biggest weight to Mondelez International Inc (NASDAQ:MDLZ), around 16.8% of its 13F portfolio. Bronson Point Partners is also relatively very bullish on the stock, earmarking 8.9 percent of its 13F equity portfolio to MDLZ.

Judging by the fact that Mondelez International Inc (NASDAQ:MDLZ) has experienced bearish sentiment from the aggregate hedge fund industry, we can see that there was a specific group of hedge funds who sold off their positions entirely last quarter. At the top of the heap, Mark Coe's Intrinsic Edge Capital dropped the largest position of all the hedgies tracked by Insider Monkey, worth about $15 million in stock. Sander Gerber's fund, Hudson Bay Capital Management, also dropped its stock, about $5.3 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's also examine hedge fund activity in other stocks similar to Mondelez International Inc (NASDAQ:MDLZ). These stocks are Altria Group Inc (NYSE:MO), Zoom Video Communications, Inc. (NASDAQ:ZM), Becton, Dickinson and Company (NYSE:BDX), Rio Tinto Group (NYSE:RIO), Crown Castle International Corp. (NYSE:CCI), Cigna Corporation (NYSE:CI), and Prologis Inc (NYSE:PLD). This group of stocks' market valuations match MDLZ's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MO,43,1289543,-3 ZM,48,6758811,1 BDX,53,1971353,-3 RIO,20,1324146,0 CCI,43,1988345,3 CI,72,2871074,-2 PLD,35,433481,-5 Average,44.9,2376679,-1.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 44.9 hedge funds with bullish positions and the average amount invested in these stocks was $2377 million. That figure was $2595 million in MDLZ's case. Cigna Corporation (NYSE:CI) is the most popular stock in this table. On the other hand Rio Tinto Group (NYSE:RIO) is the least popular one with only 20 bullish hedge fund positions. Mondelez International Inc (NASDAQ:MDLZ) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MDLZ is 61.2. 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 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 30% in 2020 through October 23rd and beat the market by 21 percentage points. Unfortunately MDLZ wasn't nearly as popular as these 10 stocks and hedge funds that were betting on MDLZ were disappointed as the stock returned 11.3% since the end of June (through 10/23) 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 so far this year.

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

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