Cedar Rock Capital: Andy Brown’s Top 8 Stock Picks

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In this article, we discuss Andy Brown’s Cedar Rock Capital’s top 8 stock picks. If you want to skip our detailed analysis of these stocks, go directly to Cedar Rock Capital: Andy Brown’s Top 3 Stock Picks.

Andy Brown founded Cedar Rock Capital in 2002, targeting endowments, foundations, families, and corporate pension funds as their main clientele. The London-based investment firm has a clear and dedicated strategy when it comes to investing, employing a long-only and buy-and-hold global equity strategy.

To select the best stocks for their investment portfolio, Andy Brown uses a bottom-up approach, where the criteria for companies is to have excellent management, value, and quality. Free cash flow yields are compared to long-term interest rates in order to assess the value of a company. Cedar Rock Capital prefers companies that offer high returns on investment, without added financial leverage. The firm’s conservative investment strategy means that their key criteria for success are preserving capital and mitigating losses, which is why they invest in a concentrated portfolio to realize absolute positive returns over the long run.

Andy Brown started his career at Morgan Stanley (NYSE:MS) in 1996, where his investment strategy was similar to the one he employs at Cedar Rock Capital, as the chief executive officer and portfolio manager.

As of the end of the second quarter, Cedar Rock Capital has a 13F portfolio valued at $4.39 billion, with investments concentrated in the consumer staples, consumer discretionary, information technology, and transport sectors. The largest holding in Andy Brown’s Q2 portfolio is The Procter & Gamble Company (NYSE:PG), with the firm owning stakes worth more than $1 billion in the consumer goods corporation.

Some of the notable stocks in Cedar Rock Capital’s Q2 portfolio include Starbucks Corporation (NASDAQ:SBUX), Philip Morris International Inc. (NYSE:PM), The Procter & Gamble Company (NYSE:PG), and Keurig Dr Pepper Inc. (NASDAQ:KDP), among others discussed in detail below.

Why should we pay attention to Andy Brown’s stock picks? Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021, our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the S&P 500 ETF (SPY). Our stock picks outperformed the market by more than 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.

Cedar Rock Capital: Andy Brown’s Top 8 Stock Picks

Our Methodology

Let’s take a look at Andy Brown’s Cedar Rock Capital’s top 8 stock picks. We ranked each stock according to the value of each holding in Brown’s Q2 portfolio. To convey a deeper understanding of each stock, we also mentioned the number of hedge funds that hold stakes in each company as of the end of the second quarter, positive analyst ratings, and earnings for Q3.

Cedar Rock Capital: Andy Brown’s Top Stock Picks

8. Expeditors International of Washington, Inc. (NASDAQ:EXPD)

Cedar Rock Capital’s Stake Value: $202,356,000

Percentage of Cedar Rock Capital’s 13F Portfolio: 4.6%

Number of Hedge Fund Holders: 29

Expeditors International of Washington, Inc. (NASDAQ:EXPD) is an American logistics company from Seattle, which aims to provide top-notch supply chain solutions to customers by leveraging technology. Their global network is present across 350 locations in over 100 countries. Their core services include transportation, warehousing and distribution, customs, and compliance. Expeditors International of Washington, Inc. (NASDAQ:EXPD) offers air, ocean, and ground freight services to customers across fashion, healthcare, automotive and mobility, manufacturing, retail, and energy sectors. It is one of the top stocks in Andy Brown’s investment portfolio.

Cedar Rock Capital owns 1.59 billion shares in Expeditors International of Washington, Inc. (NASDAQ:EXPD), worth $202.35 million, making up 4.6% of the firm’s Q2 portfolio.

At the end of June, 29 hedge funds tracked by Insider Monkey were bullish on Expeditors International of Washington, Inc. (NASDAQ:EXPD), up from 21 in Q1.

Like Starbucks Corporation (NASDAQ:SBUX), Philip Morris International Inc. (NYSE:PM), The Procter & Gamble Company (NYSE:PG), and Keurig Dr Pepper Inc. (NASDAQ:KDP), Expeditors International of Washington, Inc. (NASDAQ:EXPD) is a top stock in Andy Brown’s Q2 portfolio.

7. The Clorox Company (NYSE:CLX)

Cedar Rock Capital’s Stake Value: $306,329,000

Percentage of Cedar Rock Capital’s 13F Portfolio: 6.97%

Number of Hedge Fund Holders: 37

The Clorox Company (NYSE:CLX) is a multinational manufacturer of consumer staples, such as Pine-Sol cleaners, Fresh Step cat litter, Hidden Valley dressings and sauces, Brita water-filtration products, and Burt’s Bees natural personal care products, among others. The Clorox Company (NYSE:CLX) has many products under the CloroxPro and Clorox Healthcare brands, which are currently market leaders or hold a significant market share. The Clorox Company (NYSE:CLX) is a top stock in Andy Brown’s Cedar Rock Capital’s Q2 portfolio.

Cedar Rock Capital owns over $1.7 billion shares in The Clorox Company (NYSE:CLX), amounting to $306.32 million, representing 6.97% of the firm’s investment portfolio.

On November 1, The Clorox Company (NYSE:CLX) announced earnings for the third quarter. The reported EPS was $1.21, exceeding estimates by $0.19. Similarly, the revenue at $1.18 billion also surpassed analysts’ estimates by $108.99 million.

At the end of June, 37 hedge funds reported owning stakes in The Clorox Company (NYSE:CLX), down from 38 in the first quarter.

Here is what LRT Capital Management has to say about The Clorox Company (NYSE:CLX) in its Q1 2021 investor letter:

“For several months now, our largest position has been Clorox – the cleaning products company. Besides wipes, the company also manufactures bleach, charcoal, cat litter, plastic bags, and container products. Clorox benefited during the Covid-19 pandemic from an increased demand for cleaning products. Companies and consumers trust the Clorox brand – a source of the company’s huge competitive advantage.

United Airlines, for example, chose to partner with Clorox in its push to reassure consumers about the safety of air travel. The company is a typical “defensive” holding – subject to very small fluctuations in end market demand. Its branded consumer products remain in strong demand. Historically (pre-Covid), the company’s sales grew in line with GDP, while earnings-per-share grew slightly faster due to operational and financial leverage. We expect sales will decline slightly in the next few quarters as the Covid-19 pandemic comes to an end, but we believe this decline is more than accounted for by the company’s low valuation.

On February 4th, Clorox reported results for Q4 2020, with both earnings and sales beating estimates. Sales grew by +27% (vs. 20% estimate) from the prior year’s Q4, and EPS increased +39% ($2.03 vs. $1.75 expected). The company continues to see robust demand and raised its sales and EPS guidance for the rest of the year. Shares are down 4% year-to-date. We believe the shares are undervalued at 20x trailing and 24x forward earnings and currently represent an excellent opportunity.”

6. Keurig Dr Pepper Inc. (NASDAQ:KDP)

Cedar Rock Capital’s Stake Value: $346,398,000

Percentage of Cedar Rock Capital’s 13F Portfolio: 7.88%

Number of Hedge Fund Holders: 28

Keurig Dr Pepper Inc. (NASDAQ:KDP) is one of the leading North American beverage companies, which was created as a result of the merger between Keurig Green Mountain and Dr Pepper Snapple Group in 2018. Keurig Dr Pepper Inc. (NASDAQ:KDP) offers an extensive range of more than 125 hot and cold beverages, targeting a massive audience. Some of the well-known brands in Keurig Dr Pepper Inc. (NASDAQ:KDP)’s product portfolio include Krispy Kreme Doughnuts, Van Houtte, Cinnabon, Gloria Jean’s Coffees, 7Up, Dr. Pepper, and Snapple, among others. Keurig Dr Pepper Inc. (NASDAQ:KDP) is one of the top stocks in Andy Brown’s Q2 portfolio.

Cedar Rock Capital owns 9.82 billion shares in Keurig Dr Pepper Inc. (NASDAQ:KDP), worth $346.39 million, making up 7.88% of the firm’s investment portfolio.

On October 28, Keurig Dr Pepper Inc. (NASDAQ:KDP) announced Q3 earnings. The EPS was $0.44, as analysts had predicted. The revenue exceeded expectations by $90.96 million at $3.25 billion.

Barclays maintained an Overweight rating on Keurig Dr Pepper Inc. (NASDAQ:KDP) on November 1, with a price target of $41.

At the end of Q2, 28 hedge funds in Insider Monkey’s database of elite funds were long Keurig Dr Pepper Inc. (NASDAQ:KDP), down from 30 in Q1.

Here is what ClearBridge Investments has to say about Keurig Dr Pepper Inc. (NASDAQ:KDP) in its Q1 2021 investor letter:

“Our underweights in health care and staples contributed to relative performance during the period. We also prefer to act with some caution in a sector where regulatory risks persist. In consumer staples, we are broadly finding valuations uncompelling and sold Keurig Dr Pepper during the quarter.”

5. Automatic Data Processing, Inc. (NASDAQ:ADP)

Cedar Rock Capital’s Stake Value: $463,626,000

Percentage of Cedar Rock Capital’s 13F Portfolio: 10.55%

Number of Hedge Fund Holders: 41

Automatic Data Processing, Inc. (NASDAQ:ADP) is a global business solutions company, offering cloud-based solutions for modern HR, tax, benefits administration, and payroll needs. They pair technology with experience-led insights to transform the human resources function from a mundane administrative division to a tactical business advantage. Automatic Data Processing, Inc. (NASDAQ:ADP) serves small, mid-cap, and enterprise level firms across the hospitality, manufacturing, construction, retail, and healthcare industries, among others. Automatic Data Processing, Inc. (NASDAQ:ADP) is one of Andy Brown’s top stock picks for Q2.

Cedar Rock Capital owns 2.33 billion shares in Automatic Data Processing, Inc. (NASDAQ:ADP), worth $463.62 million, making up 10.55% of the firm’s investment portfolio for the second quarter.

Automatic Data Processing, Inc. (NASDAQ:ADP) announced quarterly earnings for Q3 on October 27. The reported EPS beat estimates by $0.16 at $1.65. Automatic Data Processing, Inc. (NASDAQ:ADP)’s revenue also exceeded estimated revenue by $77.99 million at $3.83 billion.

Barclays analyst Ramsey El-Assal kept an Overweight rating on Automatic Data Processing, Inc. (NASDAQ:ADP) on October 26, owing to the Q3 performance. He also raised the price target from $227 to $247.

Automatic Data Processing, Inc. (NASDAQ:ADP) is a notable stock in Brown’s Q2 portfolio, just like Starbucks Corporation (NASDAQ:SBUX), Philip Morris International Inc. (NYSE:PM), The Procter & Gamble Company (NYSE:PG), and Keurig Dr Pepper Inc. (NASDAQ:KDP).

Here is what Polen Capital has to say about Automatic Data Processing, Inc. (NASDAQ:ADP) in their Q4 2020 investor letter:

“For ADP, we detail our decision to sell our position in the third quarter letter. The very high levels of unemployment in the U.S. and extremely low interest rates have negatively impacted the business in the short term. At the same time, increasing competitive intensity in the human capital management industry is creating headwinds.”

4. Starbucks Corporation (NASDAQ:SBUX)

Cedar Rock Capital’s Stake Value: $601,495,000

Percentage of Cedar Rock Capital’s 13F Portfolio: 13.69%

Number of Hedge Fund Holders: 63

Starbucks Corporation (NASDAQ:SBUX) is one of Andy Brown’s top stock picks for Q2. Starbucks Corporation (NASDAQ:SBUX) is a multinational American corporation, running the largest chain of coffeehouses in the world. Starbucks Corporation (NASDAQ:SBUX) is synonymous with the coffee culture in the United States, and has gained a lot of popularity from the pop culture as well. Some of the famous Starbucks Corporation (NASDAQ:SBUX) drinks include Frappuccino beverages, espressos, instant coffees, and loose-leaf teas. As of 2021, Starbucks Corporation (NASDAQ:SBUX) operates across 83 countries, with 33,395 coffeehouses and storefronts.

Cedar Rock Capital owns 5.37 million shares in Starbucks Corporation (NASDAQ:SBUX), valued at $601.49 million, representing 13.69% of the firm’s Q2 investment portfolio.

At the end of June, 63 hedge funds were bullish on Starbucks Corporation (NASDAQ:SBUX), up from 61 in the previous quarter.

Starbucks Corporation (NASDAQ:SBUX) announced Q3 earnings on October 28, with the EPS being $1.00, as analysts had expected. The revenue missed estimates by -$77.46 million, at $8.15 billion.

Stephens analyst James Rutherford upgraded Starbucks Corporation (NASDAQ:SBUX) from Equal Weight to Overweight, with a $130 price target, raised from $118 on November 1. According to Rutherford, Starbucks Corporation (NASDAQ:SBUX) recently increasing labor compensation is a good strategy for long-term benefits and attaining higher market share, and anyone who believes that this is a useless expense is being short sighted. According to the Stephens analyst, it is a good time to buy the Starbucks Corporation (NASDAQ:SBUX) stock.

Here is what Polen Capital has to say about Starbucks Corporation (NASDAQ:SBUX) in its Q2 2021 investor letter:

“For Starbucks, we believe the underlying businesses for the company remain strong. Starbucks has grappled with the impact of the pandemic, but results have continued to show an ongoing post-pandemic recovery.”

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Disclosure: None. Cedar Rock Capital: Andy Brown’s Top 8 Stock Picks is originally published on Insider Monkey.