In this article we will check out the progression of hedge fund sentiment towards Philip Morris International Inc. (NYSE:PM) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is Philip Morris International Inc. (NYSE:PM) an outstanding investment right now? The smart money is taking a bearish view. The number of bullish hedge fund positions retreated by 9 recently. Our calculations also showed that PM isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 44 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ric Dillon of Diamond Hill Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this successful trader’s “corona catalyst plays“. Also, Europe is set to become the world’s largest cannabis market, so we checked out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the latest hedge fund action regarding Philip Morris International Inc. (NYSE:PM).
What have hedge funds been doing with Philip Morris International Inc. (NYSE:PM)?
At Q1’s end, a total of 48 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -16% from the previous quarter. The graph below displays the number of hedge funds with bullish position in PM over the last 18 quarters. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
The largest stake in Philip Morris International Inc. (NYSE:PM) was held by Cedar Rock Capital, which reported holding $675.2 million worth of stock at the end of September. It was followed by Gardner Russo & Gardner with a $623.1 million position. Other investors bullish on the company included Ariel Investments, Diamond Hill Capital, and AQR Capital Management. In terms of the portfolio weights assigned to each position Cedar Rock Capital allocated the biggest weight to Philip Morris International Inc. (NYSE:PM), around 18.07% of its 13F portfolio. Gardner Russo & Gardner is also relatively very bullish on the stock, dishing out 6.3 percent of its 13F equity portfolio to PM.
Since Philip Morris International Inc. (NYSE:PM) has experienced declining sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of hedgies that decided to sell off their full holdings by the end of the third quarter. Intriguingly, Steve Cohen’s Point72 Asset Management dropped the largest position of the “upper crust” of funds followed by Insider Monkey, totaling an estimated $42 million in stock. Matthew Tewksbury’s fund, Stevens Capital Management, also dropped its stock, about $8.4 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 9 funds by the end of the third quarter.
Let’s check out hedge fund activity in other stocks similar to Philip Morris International Inc. (NYSE:PM). We will take a look at Thermo Fisher Scientific Inc. (NYSE:TMO), AbbVie Inc (NYSE:ABBV), Paypal Holdings Inc (NASDAQ:PYPL), and ASML Holding N.V. (NASDAQ:ASML). This group of stocks’ market values resemble PM’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TMO | 80 | 3187947 | 7 |
| ABBV | 81 | 5118264 | 10 |
| PYPL | 118 | 4659097 | -8 |
| ASML | 30 | 1505012 | 8 |
| Average | 77.25 | 3617580 | 4.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 77.25 hedge funds with bullish positions and the average amount invested in these stocks was $3618 million. That figure was $2541 million in PM’s case. Paypal Holdings Inc (NASDAQ:PYPL) is the most popular stock in this table. On the other hand ASML Holding N.V. (NASDAQ:ASML) is the least popular one with only 30 bullish hedge fund positions. Philip Morris International Inc. (NYSE:PM) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 7.9% in 2020 through May 22nd and surpassed the market by 15.6 percentage points. Unfortunately PM wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); PM investors were disappointed as the stock returned -3.4% during the second quarter 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 most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
