Were Hedge Funds Right About The Clorox Company (CLX)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding The Clorox Company (NYSE:CLX).

Is The Clorox Company (NYSE:CLX) ready to rally soon? Prominent investors were in a pessimistic mood. The number of long hedge fund bets fell by 1 recently. The Clorox Company (NYSE:CLX) was in 37 hedge funds’ portfolios at the end of the second 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 Q2 rankings). There were 38 hedge funds in our database with CLX holdings at the end of March.

According to most shareholders, hedge funds are assumed to be underperforming, old financial tools of yesteryear. While there are more than 8000 funds with their doors open at the moment, Our researchers look at the leaders of this club, approximately 850 funds. These money managers handle the majority of all hedge funds’ total asset base, and by monitoring their matchless stock picks, Insider Monkey has discovered several investment strategies that have historically outrun the market. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Also, our monthly newsletter’s portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

Paul Marshall of Marshall Wace

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we are checking out stock pitches like this emerging lithium stock. 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 let’s take a look at the key hedge fund action encompassing The Clorox Company (NYSE:CLX).

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

Heading into the third quarter of 2021, a total of 37 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards CLX over the last 24 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

More specifically, Cedar Rock Capital was the largest shareholder of The Clorox Company (NYSE:CLX), with a stake worth $306.3 million reported as of the end of June. Trailing Cedar Rock Capital was Renaissance Technologies, which amassed a stake valued at $192.1 million. AQR Capital Management, Citadel Investment Group, and Candlestick Capital Management 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 6.97% of its 13F portfolio. Candlestick Capital Management is also relatively very bullish on the stock, setting aside 1.47 percent of its 13F equity portfolio to CLX.

Because The Clorox Company (NYSE:CLX) has witnessed a decline in interest from hedge fund managers, logic holds that there was a specific group of money managers that elected to cut their full holdings last quarter. At the top of the heap, John Overdeck and David Siegel’s Two Sigma Advisors cut the biggest investment of the “upper crust” of funds monitored by Insider Monkey, valued at an estimated $26.3 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund said goodbye to about $5.2 million worth. These moves are interesting, as total hedge fund interest was cut by 1 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to The Clorox Company (NYSE:CLX). These stocks are Imperial Oil Limited (NYSE:IMO), Teradyne, Inc. (NASDAQ:TER), The Hartford Financial Services Group Inc (NYSE:HIG), DISH Network Corp. (NASDAQ:DISH), Qorvo Inc (NASDAQ:QRVO), Cheniere Energy, Inc. (NYSE:LNG), and Martin Marietta Materials, Inc. (NYSE:MLM). This group of stocks’ market values match CLX’s market value.

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As you can see these stocks had an average of 39.4 hedge funds with bullish positions and the average amount invested in these stocks was $1862 million. That figure was $980 million in CLX’s case. DISH Network Corp. (NASDAQ:DISH) is the most popular stock in this table. On the other hand Imperial Oil Limited (NYSE:IMO) is the least popular one with only 15 bullish hedge fund positions. The Clorox Company (NYSE:CLX) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CLX is 61.6. 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 negative signal and 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 29.6% in 2021 through November 5th and surpassed the market again by 3.1 percentage points. Unfortunately CLX wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); CLX investors were disappointed as the stock returned -8% since the end of June (through 11/5) 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 most of these stocks already outperformed the market in 2021.

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