“October lived up to its scary reputation—the S&P 500 falling in the month by the largest amount in the last 40 years, the only worse Octobers being ’08 and the Crash of ’87. For perspective, there have been only 5 occasions in those 40 years when the S&P 500 declined by greater than 20% from peak to trough. Other than the ’87 Crash, all were during recessions. There were 17 other instances, over the same time frame, when the market fell by over 10% but less than 20%. Furthermore, this is the 18th correction of 5% or more since the current bull market started in March ’09. Corrections are the norm. They can be healthy as they often undo market complacency—overbought levels—potentially allowing the market to base and move even higher.” This is how Trapeze Asset Management summarized the recent market moves in its investor letter. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards one of the stocks hedge funds invest in.
Is Parker-Hannifin Corporation (NYSE:PH) a cheap stock to buy now? Hedge funds are in an optimistic mood. The number of bullish hedge fund bets improved by 1 in recent months. Our calculations also showed that PH isn’t among the 30 most popular stocks among hedge funds. PH was in 27 hedge funds’ portfolios at the end of September. There were 26 hedge funds in our database with PH positions at the end of the previous quarter.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Let’s check out the latest hedge fund action encompassing Parker-Hannifin Corporation (NYSE:PH).
How are hedge funds trading Parker-Hannifin Corporation (NYSE:PH)?
Heading into the fourth quarter of 2018, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards PH over the last 13 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
Among these funds, Diamond Hill Capital held the most valuable stake in Parker-Hannifin Corporation (NYSE:PH), which was worth $305.3 million at the end of the third quarter. On the second spot was Millennium Management which amassed $166.1 million worth of shares. Moreover, Pzena Investment Management, Gotham Asset Management, and Two Sigma Advisors were also bullish on Parker-Hannifin Corporation (NYSE:PH), allocating a large percentage of their portfolios to this stock.
As aggregate interest increased, key hedge funds have been driving this bullishness. Carlson Capital, managed by Clint Carlson, established the most outsized position in Parker-Hannifin Corporation (NYSE:PH). Carlson Capital had $29.4 million invested in the company at the end of the quarter. Alexander Mitchell’s Scopus Asset Management also initiated a $23.5 million position during the quarter. The other funds with brand new PH positions are Lee Ainslie’s Maverick Capital, Clint Murray’s Lodge Hill Capital, and Gregg Moskowitz’s Interval Partners.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Parker-Hannifin Corporation (NYSE:PH) but similarly valued. We will take a look at Sasol Limited (NYSE:SSL), United Continental Holdings Inc (NYSE:UAL), Kellogg Company (NYSE:K), and Red Hat, Inc. (NYSE:RHT). This group of stocks’ market valuations resemble PH’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SSL | 7 | 53180 | 1 |
| UAL | 43 | 7044436 | 1 |
| K | 25 | 329765 | 4 |
| RHT | 21 | 633851 | -8 |
| Average | 24 | 2015308 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $2.02 billion. That figure was $824 million in PH’s case. United Continental Holdings Inc (NYSE:UAL) is the most popular stock in this table. On the other hand Sasol Limited (NYSE:SSL) is the least popular one with only 7 bullish hedge fund positions. Parker-Hannifin Corporation (NYSE:PH) 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. In this regard UAL might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
