We recently published a list of the 12 Best Household Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Colgate-Palmolive Company (NYSE:CL) stands against the other best household stocks to buy according to hedge funds.
Is There a Softening in the Consumer Staple Sector?
On March 21, Bryan Spillane, Bank of America Securities’ senior food and beverage analyst, appeared on CNBC’s ‘The Exchange’ to discuss things across his space and the trends surrounding consumer staples. He said that going through the first quarter of the year and having check-ins with companies has led him to conclude that the conditions in the sector have been soft, which is true across his entire coverage universe. Consumers are pulling back a bit, and there’s uncertainty surrounding the conditions in the sector. What’s surprising is that these trends started in January and extended through the first quarter.
The sector, however, is showing a dichotomy. Spillane believed this is a market for consumer staples, as we are looking for defensiveness and certainty. But at the same time, we are doing that at a time when the fundamentals appear to be decelerating. This creates a dynamic for investors to really understand the market and where it would be best to put their money in, as not all seem as safe as they would typically be.
READ ALSO: 10 Best Strong Buy Stocks To Buy Right Now and 10 Best Vegan Stocks to Buy According to Analysts.
The Biggest Challenge in Consumer Staples
According to Spillane, the biggest challenges right now are in the beverage alcohol sector specifically, which dropped off unexpectedly in the first quarter of this year after a weak fourth quarter last year. This can be attributed to visa issues, as cohorts of consumers are not spending as much as before. Similar trends are now materializing in household products and personal care categories as well. While these sectors have been very resilient over the past three years, they are now beginning to show signs of a slowdown. The conditions are a head-scratcher, because these are the products consumers use every day. Thus, general uncertainty around a cohort of consumers, including visa holders and students, is beginning to materialize in the sector’s performance.
These trends have resulted in concerns about whether staples would be less of a safe haven this time around. Addressing these concerns, Spillane said that staples would still be a safe haven if we consider them relative to the world we are living in. Large liquid consumer staples are still a place investors would want to be if they are looking for a place to hide in uncertainty, as they are likely to generate considerable cash flows and pay dividends.
Our Methodology
We sifted through stock screeners, financial media reports, and ETFs to compile a list of 20 household stocks. We then selected the top 12 with the highest number of hedge fund holders, as of Q4 2024, and ranked them in ascending order. We sourced the hedge fund sentiment data from Insider Monkey’s database.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
An array of toothpaste, toothbrushes, and mouthwashes on a bright background, highlighting the company’s oral care products.
Colgate-Palmolive Company (NYSE:CL)
Number of Hedge Fund Holders: 62
Colgate-Palmolive Company (NYSE:CL) manufactures and sells various products for the personal and home care markets and operates in two product segments: Oral, Personal, and Home Care, and Pet Nutrition. The Oral, Personal, and Home Care segment sells cleaning products worldwide. Its brand portfolio includes several reputable brands, including Colgate, Palmolive, Irish Spring, Sorriso, Protex, meridol, Axion, Sanex, and others.
The company reported strong operational results in fiscal Q4 2024, with gross margin rising 70 basis points to 60.3%. Colgate-Palmolive Company (NYSE:CL) also maintained its dominant position in the global toothpaste market with 41.4% and manual toothbrushes with 32.2% global market share.
On March 20, the company raised its quarterly common stock cash dividend to 52c per share, up from 50c per share, effective in H2 2025. The company has been paying uninterrupted dividends on its common stock since 1895. On March 14, JPMorgan analyst Andrea Teixeira raised the firm’s price target on Colgate-Palmolive Company (NYSE:CL) to $99 from $97 and kept an Overweight rating on the shares.
Diamond Hill Large Cap Strategy also expressed bullish sentiments on the stock, and stated the following regarding Colgate-Palmolive Company (NYSE:CL) in its Q4 2024 investor letter:
“As valuations have continued rising and the economic cycle has gotten relatively long in the tooth, we’ve thought carefully about where and how we are exposed to more cyclical stocks. As such, we initiated just two new positions in Q4: Colgate-Palmolive Company (NYSE:CL) and the aforementioned Lululemon.
Colgate-Palmolive is a high-quality business with leading positions in oral care, home products and pet nutrition. Historically, the company has allocated capital well, and it produces significant free cash flows. Shares were pressured in Q4 primarily, we believe, in sympathy with near-term macroeconomic concerns rather than any fundamental issues at the business. We consequently capitalized on the underperformance and compelling valuation to start a position.”
Overall, CL ranks 2nd on our list of the best household stocks to buy according to hedge funds. While we acknowledge the potential of CL as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than CL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.
Disclosure: None. This article is originally published at Insider Monkey.
