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In this article we are going to use hedge fund sentiment as a tool and determine whether Colgate-Palmolive Company (NYSE:CL) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Colgate-Palmolive Company (NYSE:CL) has experienced an increase in hedge fund interest recently. Colgate-Palmolive Company (NYSE:CL) was in 48 hedge funds' portfolios at the end of March. The all time high for this statistic is 53. Our calculations also showed that CL isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).
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. 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 115 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.
Dmitry Balyasny of Balyasny Asset Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation, which is why we are checking out this inflation play. We go through lists like 10 best gold stocks to buy to identify promising stocks. 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 latest hedge fund action surrounding Colgate-Palmolive Company (NYSE:CL).
Do Hedge Funds Think CL Is A Good Stock To Buy Now?
At the end of the first quarter, a total of 48 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from the previous quarter. By comparison, 53 hedge funds held shares or bullish call options in CL a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Arrowstreet Capital was the largest shareholder of Colgate-Palmolive Company (NYSE:CL), with a stake worth $493.8 million reported as of the end of March. Trailing Arrowstreet Capital was GuardCap Asset Management, which amassed a stake valued at $396.9 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 7.17% of its 13F portfolio. Kehrs Ridge Capital is also relatively very bullish on the stock, dishing out 5.43 percent of its 13F equity portfolio to CL.
Now, some big names have jumped into Colgate-Palmolive Company (NYSE:CL) headfirst. Candlestick Capital Management, managed by Jack Woodruff, established the largest position in Colgate-Palmolive Company (NYSE:CL). Candlestick Capital Management had $29.6 million invested in the company at the end of the quarter. Steven Boyd's Armistice Capital also initiated a $18.6 million position during the quarter. The other funds with brand new CL positions are Brian Scudieri's Kehrs Ridge Capital, Dmitry Balyasny's Balyasny Asset Management, and Jinghua Yan's TwinBeech Capital.
Let's check out hedge fund activity in other stocks similar to Colgate-Palmolive Company (NYSE:CL). These stocks are The Sherwin-Williams Company (NYSE:SHW), The Southern Company (NYSE:SO), Snowflake Inc (NYSE:SNOW), HCA Healthcare Inc (NYSE:HCA), Equinor ASA (NYSE:EQNR), VMware, Inc. (NYSE:VMW), and Intercontinental Exchange Inc (NYSE:ICE). This group of stocks' market valuations resemble CL's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SHW,51,2016614,2 SO,35,464056,3 SNOW,71,12965065,17 HCA,62,3245183,-11 EQNR,8,99733,-10 VMW,25,549319,-10 ICE,58,3328612,5 Average,44.3,3238369,-0.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 44.3 hedge funds with bullish positions and the average amount invested in these stocks was $3238 million. That figure was $2305 million in CL's case. Snowflake Inc (NYSE:SNOW) is the most popular stock in this table. On the other hand Equinor ASA (NYSE:EQNR) is the least popular one with only 8 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 17.4% in 2021 through June 18th and beat the market again by 6.1 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 3.4% since the end of March (through 6/18) 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.