We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With the first-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 first quarter. One of these stocks was Rockwell Automation Inc. (NYSE:ROK).
Is Rockwell Automation Inc. (NYSE:ROK) the right pick for your portfolio? The smart money is betting on the stock. The number of bullish hedge fund positions advanced by 10 recently. Our calculations also showed that ROK isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). ROK was in 39 hedge funds’ portfolios at the end of December. There were 29 hedge funds in our database with ROK holdings at the end of the previous quarter.
Video: Click the image to 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 more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
John Overdeck of Two Sigma Advisors
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to check out the key hedge fund action encompassing Rockwell Automation Inc. (NYSE:ROK).
Hedge fund activity in Rockwell Automation Inc. (NYSE:ROK)
Heading into the first quarter of 2020, a total of 39 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 34% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in ROK over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
More specifically, Two Sigma Advisors was the largest shareholder of Rockwell Automation Inc. (NYSE:ROK), with a stake worth $86.5 million reported as of the end of September. Trailing Two Sigma Advisors was Nitorum Capital, which amassed a stake valued at $52 million. Impax Asset Management, GAMCO Investors, and Renaissance Technologies 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 Heathbridge Capital Management allocated the biggest weight to Rockwell Automation Inc. (NYSE:ROK), around 6.56% of its 13F portfolio. Nitorum Capital is also relatively very bullish on the stock, earmarking 2.91 percent of its 13F equity portfolio to ROK.
As aggregate interest increased, key money managers have jumped into Rockwell Automation Inc. (NYSE:ROK) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the largest position in Rockwell Automation Inc. (NYSE:ROK). Arrowstreet Capital had $27 million invested in the company at the end of the quarter. Alexander Mitchell’s Scopus Asset Management also initiated a $20.2 million position during the quarter. The other funds with brand new ROK positions are Andrew Sandler’s Sandler Capital Management, Michael Gelband’s ExodusPoint Capital, and Lee Ainslie’s Maverick Capital.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Rockwell Automation Inc. (NYSE:ROK) but similarly valued. These stocks are Splunk Inc (NASDAQ:SPLK), TELUS Corporation (NYSE:TU), Synchrony Financial (NYSE:SYF), and Chipotle Mexican Grill, Inc. (NYSE:CMG). This group of stocks’ market values resemble ROK’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SPLK | 38 | 538860 | 2 |
| TU | 13 | 254674 | -7 |
| SYF | 44 | 2269786 | -5 |
| CMG | 48 | 3903315 | 5 |
| Average | 35.75 | 1741659 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 35.75 hedge funds with bullish positions and the average amount invested in these stocks was $1742 million. That figure was $614 million in ROK’s case. Chipotle Mexican Grill, Inc. (NYSE:CMG) is the most popular stock in this table. On the other hand TELUS Corporation (NYSE:TU) is the least popular one with only 13 bullish hedge fund positions. Rockwell Automation Inc. (NYSE:ROK) 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but beat the market by 3.1 percentage points. Unfortunately ROK wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ROK were disappointed as the stock returned -21.1% 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 20 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.
