Is ROK Stock A Buy or Sell?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Rockwell Automation Inc. (NYSE:ROK).

Is ROK stock a buy? Rockwell Automation Inc. (NYSE:ROK) investors should be aware of a decrease in enthusiasm from smart money recently. Rockwell Automation Inc. (NYSE:ROK) was in 35 hedge funds’ portfolios at the end of December. The all time high for this statistic is 50. Our calculations also showed that ROK isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here).

Lee Ainslie of Maverick Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 10 best battery stocks to buy to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind let’s view the fresh hedge fund action encompassing Rockwell Automation Inc. (NYSE:ROK).

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

At fourth quarter’s end, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from one quarter earlier. On the other hand, there were a total of 39 hedge funds with a bullish position in ROK a year ago. 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 holdings significantly (or already accumulated large positions).

Among these funds, Impax Asset Management held the most valuable stake in Rockwell Automation Inc. (NYSE:ROK), which was worth $135.5 million at the end of the fourth quarter. On the second spot was Holocene Advisors which amassed $88.9 million worth of shares. Nitorum Capital, AQR Capital Management, and Arrowstreet Capital 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 4.69% of its 13F portfolio. Nitorum Capital is also relatively very bullish on the stock, setting aside 2.12 percent of its 13F equity portfolio to ROK.

Due to the fact that Rockwell Automation Inc. (NYSE:ROK) has witnessed declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there is a sect of funds that elected to cut their entire stakes by the end of the fourth quarter. It’s worth mentioning that Principal Global Investors’s Columbus Circle Investors dumped the biggest investment of the 750 funds tracked by Insider Monkey, comprising about $17.4 million in stock. Louis Bacon’s fund, Moore Global Investments, also said goodbye to its stock, about $12.6 million worth. These moves are interesting, as total hedge fund interest dropped by 9 funds by the end of the fourth quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Rockwell Automation Inc. (NYSE:ROK). We will take a look at EOG Resources Inc (NYSE:EOG), Banco Bradesco SA (NYSE:BBD), WEC Energy Group, Inc. (NYSE:WEC), Teladoc Health, Inc (NYSE:TDOC), Huazhu Group Limited (NASDAQ:HTHT), Corteva, Inc. (NYSE:CTVA), and Motorola Solutions Inc (NYSE:MSI). This group of stocks’ market caps resemble ROK’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.3 hedge funds with bullish positions and the average amount invested in these stocks was $973 million. That figure was $635 million in ROK’s case. Teladoc Health, Inc (NYSE:TDOC) is the most popular stock in this table. On the other hand Banco Bradesco SA (NYSE:BBD) is the least popular one with only 17 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. Our overall hedge fund sentiment score for ROK is 44.3. 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 positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 7.9% in 2021 through April 1st and beat the market again by 0.4 percentage points. Unfortunately ROK wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on ROK were disappointed as the stock returned 5.5% since the end of December (through 4/1) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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