Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about The Clorox Company (NYSE:CLX).
The Clorox Company (NYSE:CLX) investors should be aware of a decrease in enthusiasm from smart money recently. The Clorox Company (NYSE:CLX) was in 38 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 41. Our calculations also showed that CLX 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.
Lee Ainslie of Maverick Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 we’re going to view the new hedge fund action encompassing The Clorox Company (NYSE:CLX).
Do Hedge Funds Think CLX Is A Good Stock To Buy Now?
At the end of the first quarter, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from the fourth quarter of 2020. By comparison, 41 hedge funds held shares or bullish call options in CLX a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Cedar Rock Capital held the most valuable stake in The Clorox Company (NYSE:CLX), which was worth $347.6 million at the end of the fourth quarter. On the second spot was AQR Capital Management which amassed $283.4 million worth of shares. Renaissance Technologies, Citadel Investment Group, and Citadel Investment Group 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 Cedar Rock Capital allocated the biggest weight to The Clorox Company (NYSE:CLX), around 7.77% of its 13F portfolio. CSat Investment Advisory is also relatively very bullish on the stock, designating 1.53 percent of its 13F equity portfolio to CLX.
Judging by the fact that The Clorox Company (NYSE:CLX) has faced bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there lies a certain “tier” of money managers that slashed their positions entirely in the first quarter. Interestingly, David Harding’s Winton Capital Management dumped the largest stake of the “upper crust” of funds followed by Insider Monkey, valued at about $3.2 million in stock, and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners was right behind this move, as the fund said goodbye to about $0.9 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 1 funds in the first quarter.
Let’s go over hedge fund activity in other stocks similar to The Clorox Company (NYSE:CLX). These stocks are AmerisourceBergen Corporation (NYSE:ABC), ZTO Express (Cayman) Inc. (NYSE:ZTO), New Oriental Education & Technology Group Inc. (NYSE:EDU), Kansas City Southern (NYSE:KSU), Nucor Corporation (NYSE:NUE), Franco-Nevada Corporation (NYSE:FNV), and Fortive Corporation (NYSE:FTV). This group of stocks’ market caps are similar to CLX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ABC | 43 | 1177164 | -4 |
| ZTO | 15 | 659779 | -2 |
| EDU | 45 | 2187946 | 2 |
| KSU | 49 | 1662353 | 0 |
| NUE | 25 | 191827 | -4 |
| FNV | 20 | 933238 | -7 |
| FTV | 27 | 1696539 | -6 |
| Average | 32 | 1215549 | -3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 32 hedge funds with bullish positions and the average amount invested in these stocks was $1216 million. That figure was $1196 million in CLX’s case. Kansas City Southern (NYSE:KSU) is the most popular stock in this table. On the other hand ZTO Express (Cayman) Inc. (NYSE:ZTO) is the least popular one with only 15 bullish hedge fund positions. The Clorox Company (NYSE:CLX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CLX is 65.6. 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 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 19.3% in 2021 through June 25th and beat the market again by 4.8 percentage points. Unfortunately CLX wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on CLX were disappointed as the stock returned -7.9% since the end of March (through 6/25) 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.
Follow Clorox Co (NYSE:CLX)
Follow Clorox Co (NYSE:CLX)
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Disclosure: None. This article was originally published at Insider Monkey.
