Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published 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. After several tireless days we have finished crunching the numbers from nearly 835 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of December 31st. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Keurig Dr Pepper Inc. (NASDAQ:KDP).
Is Keurig Dr Pepper Inc. (NASDAQ:KDP) a worthy stock to buy now? Prominent investors are becoming more confident. The number of long hedge fund positions went up by 3 recently. Our calculations also showed that KDP 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.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
David E. Shaw of D.E. Shaw
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. With all of this in mind let’s take a gander at the key hedge fund action encompassing Keurig Dr Pepper Inc. (NASDAQ:KDP).
How have hedgies been trading Keurig Dr Pepper Inc. (NASDAQ:KDP)?
At the end of the fourth quarter, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from one quarter earlier. On the other hand, there were a total of 21 hedge funds with a bullish position in KDP a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
More specifically, Cedar Rock Capital was the largest shareholder of Keurig Dr Pepper Inc. (NASDAQ:KDP), with a stake worth $275.1 million reported as of the end of September. Trailing Cedar Rock Capital was D E Shaw, which amassed a stake valued at $105.1 million. Levin Easterly Partners, Soros Fund Management, 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 Keurig Dr Pepper Inc. (NASDAQ:KDP), around 6.23% of its 13F portfolio. Candlestick Capital Management is also relatively very bullish on the stock, designating 1.21 percent of its 13F equity portfolio to KDP.
As one would reasonably expect, key hedge funds have been driving this bullishness. Candlestick Capital Management, managed by Jack Woodruff, initiated the largest position in Keurig Dr Pepper Inc. (NASDAQ:KDP). Candlestick Capital Management had $12.7 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also made a $5 million investment in the stock during the quarter. The following funds were also among the new KDP investors: Joel Greenblatt’s Gotham Asset Management, Philippe Laffont’s Coatue Management, and Jinghua Yan’s TwinBeech Capital.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Keurig Dr Pepper Inc. (NASDAQ:KDP) but similarly valued. These stocks are The Dow Chemical Company (NYSE:DOW), Autodesk, Inc. (NASDAQ:ADSK), V.F. Corporation (NYSE:VFC), and Dollar General Corp. (NYSE:DG). This group of stocks’ market values are closest to KDP’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DOW | 34 | 165271 | -3 |
| ADSK | 64 | 3357850 | 16 |
| VFC | 29 | 770788 | -7 |
| DG | 50 | 2075641 | 1 |
| Average | 44.25 | 1592388 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 44.25 hedge funds with bullish positions and the average amount invested in these stocks was $1592 million. That figure was $594 million in KDP’s case. Autodesk, Inc. (NASDAQ:ADSK) is the most popular stock in this table. On the other hand V.F. Corporation (NYSE:VFC) is the least popular one with only 29 bullish hedge fund positions. Compared to these stocks Keurig Dr Pepper Inc. (NASDAQ:KDP) is even less popular than VFC. Hedge funds dodged a bullet by taking a bearish stance towards KDP. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but managed to beat the market by 3.1 percentage points. Unfortunately KDP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); KDP investors were disappointed as the stock returned -14.9% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in Q1.
Disclosure: None. This article was originally published at Insider Monkey.