Was The Smart Money Right About PepsiCo, Inc. (PEP)?

With the second-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the third quarter of 2021. One of these stocks was PepsiCo, Inc. (NYSE:PEP).

PepsiCo, Inc. (NYSE:PEP) was in 66 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic was previously 65. This means the bullish number of hedge fund positions in this stock currently sits at its new all time high. PEP shareholders have witnessed an increase in activity from the world’s largest hedge funds of late. There were 61 hedge funds in our database with PEP holdings at the end of March. Our calculations also showed that PEP isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Donald Yacktman of Yacktman Asset Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. We check out articles like Warren Buffett’s 3 money saving tips that provide inflation and volatility hedges. We go through lists like the 10 best EV 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 analyze the fresh hedge fund action regarding PepsiCo, Inc. (NYSE:PEP).

Do Hedge Funds Think PEP Is A Good Stock To Buy Now?

At Q2’s end, a total of 66 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from the previous quarter. By comparison, 53 hedge funds held shares or bullish call options in PEP a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Fundsmith LLP, managed by Terry Smith, holds the most valuable position in PepsiCo, Inc. (NYSE:PEP). Fundsmith LLP has a $1.4946 billion position in the stock, comprising 4.1% of its 13F portfolio. The second most bullish fund manager is Yacktman Asset Management, led by Donald Yacktman, holding a $663.6 million position; 6.4% of its 13F portfolio is allocated to the stock. Remaining professional money managers with similar optimism comprise Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Ric Dillon’s Diamond Hill Capital and Ray Dalio’s Bridgewater Associates. In terms of the portfolio weights assigned to each position Kehrs Ridge Capital allocated the biggest weight to PepsiCo, Inc. (NYSE:PEP), around 6.65% of its 13F portfolio. Yacktman Asset Management is also relatively very bullish on the stock, designating 6.44 percent of its 13F equity portfolio to PEP.

With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. Junto Capital Management, managed by James Parsons, created the most valuable position in PepsiCo, Inc. (NYSE:PEP). Junto Capital Management had $39.9 million invested in the company at the end of the quarter. Simon Sadler’s Segantii Capital also made a $22.2 million investment in the stock during the quarter. The following funds were also among the new PEP investors: Andrew Weiss’s Weiss Asset Management, D. E. Shaw’s D E Shaw, and Lee Ainslie’s Maverick Capital.

Let’s now review hedge fund activity in other stocks similar to PepsiCo, Inc. (NYSE:PEP). We will take a look at Chevron Corporation (NYSE:CVX), AbbVie Inc (NYSE:ABBV), Thermo Fisher Scientific Inc. (NYSE:TMO), Merck & Co., Inc. (NYSE:MRK), Broadcom Inc (NASDAQ:AVGO), Novo Nordisk A/S (NYSE:NVO), and Danaher Corporation (NYSE:DHR). This group of stocks’ market valuations are similar to PEP’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 63.3 hedge funds with bullish positions and the average amount invested in these stocks was $5046 million. That figure was $5194 million in PEP’s case. Thermo Fisher Scientific Inc. (NYSE:TMO) is the most popular stock in this table. On the other hand Novo Nordisk A/S (NYSE:NVO) is the least popular one with only 20 bullish hedge fund positions. PepsiCo, Inc. (NYSE:PEP) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PEP is 74.3. 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. 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 26.3% in 2021 through October 29th and still beat the market by 2.3 percentage points. Hedge funds were also right about betting on PEP as the stock returned 9.8% since the end of Q2 (through 10/29) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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Disclosure: None. This article was originally published at Insider Monkey.

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