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

Abigail Fisher
·6 min read

Keeping this in mind, let's analyze whether Colgate-Palmolive Company (NYSE:CL) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.

Colgate-Palmolive Company (NYSE:CL) has experienced a decrease in enthusiasm from smart money of late. Colgate-Palmolive Company (NYSE:CL) was in 50 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 53. Our calculations also showed that CL 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.

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 58 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.

NAVELLIER & ASSOCIATES
NAVELLIER & ASSOCIATES

Louis Navellier of Navellier & Associates

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. Now we're going to take a glance at the fresh hedge fund action regarding Colgate-Palmolive Company (NYSE:CL).

How are hedge funds trading Colgate-Palmolive Company (NYSE:CL)?

At the end of the second quarter, a total of 50 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the first quarter of 2020. By comparison, 42 hedge funds held shares or bullish call options in CL a year ago. With hedgies' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

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

Among these funds, Renaissance Technologies held the most valuable stake in Colgate-Palmolive Company (NYSE:CL), which was worth $409.7 million at the end of the third quarter. On the second spot was D E Shaw which amassed $220.3 million worth of shares. AQR Capital Management, GuardCap Asset Management, and Yacktman Asset 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 VGI Partners allocated the biggest weight to Colgate-Palmolive Company (NYSE:CL), around 9.22% of its 13F portfolio. GuardCap Asset Management is also relatively very bullish on the stock, setting aside 7.93 percent of its 13F equity portfolio to CL.

Since Colgate-Palmolive Company (NYSE:CL) has witnessed bearish sentiment from the aggregate hedge fund industry, it's easy to see that there was a specific group of fund managers that elected to cut their full holdings in the second quarter. It's worth mentioning that Benjamin Pass's TOMS Capital dropped the largest investment of the 750 funds tracked by Insider Monkey, totaling an estimated $41.5 million in stock, and Steve Cohen's Point72 Asset Management was right behind this move, as the fund said goodbye to about $28.6 million worth. These moves are interesting, as total hedge fund interest fell by 3 funds in the second quarter.

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. We will take a look at China Petroleum & Chemical Corp (NYSE:SNP), Equinix Inc (REIT) (NASDAQ:EQIX), Advanced Micro Devices, Inc. (NASDAQ:AMD), Enbridge Inc (NYSE:ENB), The TJX Companies, Inc. (NYSE:TJX), Target Corporation (NYSE:TGT), and General Electric Company (NYSE:GE). All of these stocks' market caps are similar to CL's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SNP,10,168521,1 EQIX,49,2314147,-6 AMD,51,2569197,-11 ENB,28,379932,3 TJX,72,2347508,3 TGT,54,3159010,0 GE,57,3186232,-1 Average,45.9,2017792,-1.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 45.9 hedge funds with bullish positions and the average amount invested in these stocks was $2018 million. That figure was $1699 million in CL's case. The TJX Companies, Inc. (NYSE:TJX) 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 10 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 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. 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 CL wasn't nearly as popular as these 10 stocks and hedge funds that were betting on CL were disappointed as the stock returned 9.5% 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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