Hedge Funds Are Souring On Donaldson Company, Inc. (DCI)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. In this article we look at what those investors think of Donaldson Company, Inc. (NYSE:DCI).

Is Donaldson Company, Inc. (NYSE:DCI) a buy right now? Investors who are in the know are reducing their bets on the stock. The number of long hedge fund positions were cut by 1 in recent months. Our calculations also showed that DCI isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). DCI was in 20 hedge funds’ portfolios at the end of March. There were 21 hedge funds in our database with DCI holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Jeffrey Bronchick of Cove Street Capital

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s analyze the key hedge fund action surrounding Donaldson Company, Inc. (NYSE:DCI).

What does smart money think about Donaldson Company, Inc. (NYSE:DCI)?

At the end of the first quarter, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the fourth quarter of 2019. On the other hand, there were a total of 16 hedge funds with a bullish position in DCI a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

The largest stake in Donaldson Company, Inc. (NYSE:DCI) was held by Impax Asset Management, which reported holding $36.5 million worth of stock at the end of September. It was followed by GAMCO Investors with a $28.8 million position. Other investors bullish on the company included Millennium Management, Arrowstreet Capital, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Cove Street Capital allocated the biggest weight to Donaldson Company, Inc. (NYSE:DCI), around 1.02% of its 13F portfolio. Impax Asset Management is also relatively very bullish on the stock, dishing out 0.49 percent of its 13F equity portfolio to DCI.

Judging by the fact that Donaldson Company, Inc. (NYSE:DCI) has faced falling interest from the aggregate hedge fund industry, logic holds that there exists a select few funds who sold off their entire stakes last quarter. At the top of the heap, Paul Marshall and Ian Wace’s Marshall Wace LLP said goodbye to the largest position of all the hedgies watched by Insider Monkey, valued at an estimated $3.1 million in stock. Noam Gottesman’s fund, GLG Partners, also dumped its stock, about $2.9 million worth. These transactions are important to note, as total hedge fund interest fell by 1 funds last quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Donaldson Company, Inc. (NYSE:DCI) but similarly valued. These stocks are Grupo Aval Acciones y Valores S.A. (NYSE:AVAL), SolarWinds Corporation (NYSE:SWI), Hyatt Hotels Corporation (NYSE:H), and Casey’s General Stores, Inc. (NASDAQ:CASY). This group of stocks’ market values are closest to DCI’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $706 million. That figure was $126 million in DCI’s case. Hyatt Hotels Corporation (NYSE:H) is the most popular stock in this table. On the other hand Grupo Aval Acciones y Valores S.A. (NYSE:AVAL) is the least popular one with only 5 bullish hedge fund positions. Donaldson Company, Inc. (NYSE:DCI) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.2% in 2020 through June 17th but beat the market by 14.8 percentage points. Unfortunately DCI wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on DCI were disappointed as the stock returned 19.1% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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