Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before last year’s Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to The Coca-Cola Company (NYSE:KO) changed recently.
The Coca-Cola Company (NYSE:KO) shareholders have witnessed an increase in hedge fund sentiment in recent months. KO was in 50 hedge funds’ portfolios at the end of the third quarter of 2019. There were 48 hedge funds in our database with KO holdings at the end of the previous quarter. Our calculations also showed that KO isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Warren Buffett of Berkshire Hathaway
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind we’re going to analyze the recent hedge fund action regarding The Coca-Cola Company (NYSE:KO).
What have hedge funds been doing with The Coca-Cola Company (NYSE:KO)?
Heading into the fourth quarter of 2019, a total of 50 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards KO over the last 17 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in The Coca-Cola Company (NYSE:KO) was held by Berkshire Hathaway, which reported holding $21776 million worth of stock at the end of September. It was followed by Yacktman Asset Management with a $549.2 million position. Other investors bullish on the company included Adage Capital Management, GQG Partners, and Alkeon Capital Management. In terms of the portfolio weights assigned to each position Berkshire Hathaway allocated the biggest weight to The Coca-Cola Company (NYSE:KO), around 10.14% of its 13F portfolio. Yacktman Asset Management is also relatively very bullish on the stock, dishing out 6.75 percent of its 13F equity portfolio to KO.
As one would reasonably expect, key hedge funds were breaking ground themselves. Laurion Capital Management, managed by Benjamin A. Smith, created the biggest call position in The Coca-Cola Company (NYSE:KO). Laurion Capital Management had $15.7 million invested in the company at the end of the quarter. Matthew Tewksbury’s Stevens Capital Management also initiated a $14.2 million position during the quarter. The other funds with new positions in the stock are David Costen Haley’s HBK Investments, Parvinder Thiara’s Athanor Capital, and Karim Abbadi and Edward McBride’s Centiva Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as The Coca-Cola Company (NYSE:KO) but similarly valued. These stocks are Intel Corporation (NASDAQ:INTC), Chevron Corporation (NYSE:CVX), Wells Fargo & Company (NYSE:WFC), and Merck & Co., Inc. (NYSE:MRK). All of these stocks’ market caps resemble KO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| INTC | 58 | 4800111 | 15 |
| CVX | 48 | 1775593 | 4 |
| WFC | 62 | 25231139 | -3 |
| MRK | 73 | 4568239 | 3 |
| Average | 60.25 | 9093771 | 4.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 60.25 hedge funds with bullish positions and the average amount invested in these stocks was $9094 million. That figure was $23639 million in KO’s case. Merck & Co., Inc. (NYSE:MRK) is the most popular stock in this table. On the other hand Chevron Corporation (NYSE:CVX) is the least popular one with only 48 bullish hedge fund positions. The Coca-Cola Company (NYSE:KO) 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 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately KO wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); KO investors were disappointed as the stock returned 19.6% in 2019 (as of 12/23) and trailed 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 65 percent of these stocks already outperformed the market in 2019.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
