Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we publish an article with the title “Recession is Imminent: We Need A Travel Ban NOW”. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 835 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider Philip Morris International Inc. (NYSE:PM) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.
Philip Morris International Inc. (NYSE:PM) was in 57 hedge funds’ portfolios at the end of the fourth quarter of 2019. PM has seen a decrease in hedge fund sentiment lately. There were 60 hedge funds in our database with PM holdings at the end of the previous quarter. Our calculations also showed that PM isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
If you’d ask most traders, hedge funds are seen as underperforming, old investment tools of the past. While there are more than 8000 funds trading today, Our experts look at the upper echelon of this club, about 850 funds. These money managers have their hands on the majority of all hedge funds’ total asset base, and by keeping an eye on their first-class picks, Insider Monkey has come up with a number of investment strategies that have historically outrun Mr. Market. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Ric Dillon of Diamond Hill Capital
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind we’re going to take a glance at the fresh hedge fund action surrounding Philip Morris International Inc. (NYSE:PM).
Hedge fund activity in Philip Morris International Inc. (NYSE:PM)
At the end of the fourth quarter, a total of 57 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% 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 an “upper tier” of notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Andy Brown’s Cedar Rock Capital has the most valuable position in Philip Morris International Inc. (NYSE:PM), worth close to $781.8 million, accounting for 17.7% of its total 13F portfolio. The second most bullish fund manager is Gardner Russo & Gardner, managed by Tom Russo, which holds a $754.2 million position; 5.8% of its 13F portfolio is allocated to the company. Remaining members of the smart money that hold long positions consist of Ric Dillon’s Diamond Hill Capital, John W. Rogers’s Ariel Investments and Cliff Asness’s 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 17.7% of its 13F portfolio. Chiron Investment Management is also relatively very bullish on the stock, earmarking 7.93 percent of its 13F equity portfolio to PM.
Seeing as Philip Morris International Inc. (NYSE:PM) has witnessed falling interest from the smart money, it’s easy to see that there is a sect of hedge funds who sold off their positions entirely in the third quarter. At the top of the heap, Rajiv Jain’s GQG Partners cut the biggest investment of the 750 funds tracked by Insider Monkey, valued at about $439.9 million in stock. Ricky Sandler’s fund, Eminence Capital, also dropped its stock, about $53.3 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 3 funds in the third quarter.
Let’s now review hedge fund activity in other stocks similar to Philip Morris International Inc. (NYSE:PM). These stocks are AbbVie Inc (NYSE:ABBV), AstraZeneca plc (NYSE:AZN), Thermo Fisher Scientific Inc. (NYSE:TMO), and Costco Wholesale Corporation (NASDAQ:COST). All of these stocks’ market caps are similar to PM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ABBV | 71 | 5288422 | 3 |
| AZN | 32 | 1901127 | 4 |
| TMO | 73 | 3607687 | 3 |
| COST | 70 | 4401660 | 7 |
| Average | 61.5 | 3799724 | 4.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 61.5 hedge funds with bullish positions and the average amount invested in these stocks was $3800 million. That figure was $3241 million in PM’s case. Thermo Fisher Scientific Inc. (NYSE:TMO) is the most popular stock in this table. On the other hand AstraZeneca plc (NYSE:AZN) is the least popular one with only 32 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th but still beat the market by 1.9 percentage points. A small number of hedge funds were also right about betting on PM as the stock returned -4.1% during the same time period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
