Is Donaldson Company, Inc. (DCI) Going to Burn These Hedge Funds?

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to the smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Donaldson Company, Inc. (NYSE:DCI)? The smart money sentiment can provide an answer to this question.

Donaldson Company, Inc. (NYSE:DCI) has seen an increase in activity from the world’s largest hedge funds in recent months. Donaldson Company, Inc. (NYSE:DCI) was in 25 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 30. There were 21 hedge funds in our database with DCI holdings at the end of June. Our calculations also showed that DCI 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. Keeping this in mind we’re going to view the key hedge fund action surrounding Donaldson Company, Inc. (NYSE:DCI).

Mario Gabelli of GAMCO Investors

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

At Q3’s end, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 19% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards DCI over the last 25 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Donaldson Company, Inc. (NYSE:DCI) was held by Impax Asset Management, which reported holding $82.5 million worth of stock at the end of September. It was followed by Greenhouse Funds with a $29 million position. Other investors bullish on the company included Arrowstreet Capital, GAMCO Investors, and Balyasny Asset Management. In terms of the portfolio weights assigned to each position Greenhouse Funds allocated the biggest weight to Donaldson Company, Inc. (NYSE:DCI), around 2.92% of its 13F portfolio. Neo Ivy Capital is also relatively very bullish on the stock, dishing out 0.52 percent of its 13F equity portfolio to DCI.

Consequently, specific money managers have jumped into Donaldson Company, Inc. (NYSE:DCI) headfirst. Balyasny Asset Management, managed by Dmitry Balyasny, created the most outsized position in Donaldson Company, Inc. (NYSE:DCI). Balyasny Asset Management had $24.1 million invested in the company at the end of the quarter. Greg Eisner’s Engineers Gate Manager also initiated a $2 million position during the quarter. The following funds were also among the new DCI investors: Renaissance Technologies, Jinghua Yan’s TwinBeech Capital, and Peter Algert’s Algert Global.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Donaldson Company, Inc. (NYSE:DCI) but similarly valued. These stocks are Workiva Inc (NYSE:WK), Tenet Healthcare Corp (NYSE:THC), RLX Technology Inc. (NYSE:RLX), Boyd Gaming Corporation (NYSE:BYD), Kohl’s Corporation (NYSE:KSS), Pilgrim’s Pride Corporation (NASDAQ:PPC), and Old Republic International Corporation (NYSE:ORI). All of these stocks’ market caps are closest to DCI’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.6 hedge funds with bullish positions and the average amount invested in these stocks was $726 million. That figure was $247 million in DCI’s case. Tenet Healthcare Corp (NYSE:THC) is the most popular stock in this table. On the other hand RLX Technology Inc. (NYSE:RLX) is the least popular one with only 11 bullish hedge fund positions. Donaldson Company, Inc. (NYSE:DCI) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for DCI is 53.4. 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 31.1% in 2021 through December 9th and surpassed the market again by 5.1 percentage points. Unfortunately DCI wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); DCI investors were disappointed as the stock returned 2.6% since the end of September (through 12/9) 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.