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 Parker-Hannifin Corporation (NYSE:PH) and determine whether hedge funds had an edge regarding this stock.
Parker-Hannifin Corporation (NYSE:PH) shareholders have witnessed a decrease in enthusiasm from smart money lately. Parker-Hannifin Corporation (NYSE:PH) was in 39 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 56. Our calculations also showed that PH isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).
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 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. With all of this in mind let’s take a look at the new hedge fund action surrounding Parker-Hannifin Corporation (NYSE:PH).
Daniel Sundheim of D1 Capital
Do Hedge Funds Think PH Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2021, a total of 39 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from one quarter earlier. By comparison, 51 hedge funds held shares or bullish call options in PH a year ago. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
The largest stake in Parker-Hannifin Corporation (NYSE:PH) was held by Viking Global, which reported holding $867.2 million worth of stock at the end of September. It was followed by D1 Capital Partners with a $205.2 million position. Other investors bullish on the company included Citadel Investment Group, Renaissance Technologies, and Senator Investment Group. In terms of the portfolio weights assigned to each position Unio Capital allocated the biggest weight to Parker-Hannifin Corporation (NYSE:PH), around 3.13% of its 13F portfolio. Viking Global is also relatively very bullish on the stock, earmarking 2.41 percent of its 13F equity portfolio to PH.
Since Parker-Hannifin Corporation (NYSE:PH) has witnessed bearish sentiment from the entirety of the hedge funds we track, we can see that there is a sect of money managers who sold off their positions entirely heading into Q4. It’s worth mentioning that Matthew Stadelman’s Diamond Hill Capital said goodbye to the largest investment of all the hedgies followed by Insider Monkey, valued at about $463.6 million in stock. Doug Gordon, Jon Hilsabeck and Don Jabro’s fund, Shellback Capital, also dropped its stock, about $63.4 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 3 funds heading into Q4.
Let’s now review hedge fund activity in other stocks similar to Parker-Hannifin Corporation (NYSE:PH). These stocks are AutoZone, Inc. (NYSE:AZO), Unity Software Inc. (NYSE:U), DuPont de Nemours Inc (NYSE:DD), KKR & Co Inc. (NYSE:KKR), Otis Worldwide Corporation (NYSE:OTIS), AFLAC Incorporated (NYSE:AFL), and The Hershey Company (NYSE:HSY). All of these stocks’ market caps match PH’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AZO | 35 | 1020383 | 1 |
| U | 36 | 7901507 | 7 |
| DD | 51 | 1498457 | -6 |
| KKR | 56 | 4652455 | 2 |
| OTIS | 46 | 2206787 | 1 |
| AFL | 34 | 223946 | 1 |
| HSY | 33 | 1274071 | -5 |
| Average | 41.6 | 2682515 | 0.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 41.6 hedge funds with bullish positions and the average amount invested in these stocks was $2683 million. That figure was $1974 million in PH’s case. KKR & Co Inc. (NYSE:KKR) is the most popular stock in this table. On the other hand The Hershey Company (NYSE:HSY) is the least popular one with only 33 bullish hedge fund positions. Parker-Hannifin Corporation (NYSE:PH) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for PH is 35.9. 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 29.6% in 2021 and still beat the market by 3.6 percentage points. A small number of hedge funds were also right about betting on PH as the stock returned 11.2% since the end of the third quarter (through 1/31) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.
