Should You Avoid Parker-Hannifin Corporation (PH)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Parker-Hannifin Corporation (NYSE:PH).

Is Parker-Hannifin Corporation (NYSE:PH) going to take off soon? The smart money is selling. The number of long hedge fund positions were cut by 1 lately. Our calculations also showed that PH isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). PH was in 25 hedge funds’ portfolios at the end of September. There were 26 hedge funds in our database with PH 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.

If you’d ask most investors, hedge funds are perceived as underperforming, old financial vehicles of yesteryear. While there are more than 8000 funds trading today, Our researchers choose to focus on the elite of this group, about 750 funds. These investment experts handle most of the hedge fund industry’s total capital, and by observing their top investments, Insider Monkey has discovered a number of investment strategies that have historically outstripped Mr. Market. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points annually since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

Cliff Asness of AQR Capital Management

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a gander at the new hedge fund action regarding Parker-Hannifin Corporation (NYSE:PH).

What does smart money think about Parker-Hannifin Corporation (NYSE:PH)?

At Q3’s end, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from one quarter earlier. By comparison, 27 hedge funds held shares or bullish call options in PH a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

The largest stake in Parker-Hannifin Corporation (NYSE:PH) was held by Diamond Hill Capital, which reported holding $289.9 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $86.9 million position. Other investors bullish on the company included Alyeska Investment Group, AQR Capital Management, and Pzena Investment Management. In terms of the portfolio weights assigned to each position Diamond Hill Capital allocated the biggest weight to Parker-Hannifin Corporation (NYSE:PH), around 1.54% of its portfolio. Alyeska Investment Group is also relatively very bullish on the stock, dishing out 1.22 percent of its 13F equity portfolio to PH.

Seeing as Parker-Hannifin Corporation (NYSE:PH) has witnessed falling interest from the aggregate hedge fund industry, it’s safe to say that there exists a select few funds who sold off their entire stakes heading into Q4. Intriguingly, Matthew Tewksbury’s Stevens Capital Management cut the largest investment of the “upper crust” of funds watched by Insider Monkey, totaling an estimated $7 million in call options, and Alexander Mitchell’s Scopus Asset Management was right behind this move, as the fund sold off about $6.8 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 1 funds heading into Q4.

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. These stocks are Carnival Corporation & Plc (NYSE:CCL), Fortive Corporation (NYSE:FTV), Archer-Daniels-Midland Company (NYSE:ADM), and PPL Corporation (NYSE:PPL). This group of stocks’ market caps match PH’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $605 million. That figure was $804 million in PH’s case. Fortive Corporation (NYSE:FTV) is the most popular stock in this table. On the other hand Archer-Daniels-Midland Company (NYSE:ADM) is the least popular one with only 21 bullish hedge fund positions. Parker-Hannifin Corporation (NYSE:PH) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on PH as the stock returned 10.6% during the first two months of Q4 and outperformed the market by an even larger margin.

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