Was The Smart Money Right About Ecolab Inc. (ECL)?

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Ecolab Inc. (NYSE:ECL).

Ecolab Inc. (NYSE:ECL) investors should be aware of an increase in hedge fund interest of late. Ecolab Inc. (NYSE:ECL) was in 48 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 52. There were 42 hedge funds in our database with ECL positions at the end of the first quarter. Our calculations also showed that ECL isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

William Von Mueffling of Cantillon Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, billionaire John Paulson is loading up on the miners, so we are checking out stock pitches like this mining stock. 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. 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 homepage. With all of this in mind let’s review the recent hedge fund action surrounding Ecolab Inc. (NYSE:ECL).

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

At the end of June, a total of 48 of the hedge funds tracked by Insider Monkey were long this stock, a change of 14% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in ECL over the last 24 quarters. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

More specifically, Bill & Melinda Gates Foundation Trust was the largest shareholder of Ecolab Inc. (NYSE:ECL), with a stake worth $899.4 million reported as of the end of June. Trailing Bill & Melinda Gates Foundation Trust was Impax Asset Management, which amassed a stake valued at $658.3 million. Cantillon Capital Management, Millennium Management, and AQR Capital Management 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 Appian Way Asset Management allocated the biggest weight to Ecolab Inc. (NYSE:ECL), around 5.91% of its 13F portfolio. Bill & Melinda Gates Foundation Trust is also relatively very bullish on the stock, designating 3.77 percent of its 13F equity portfolio to ECL.

As industrywide interest jumped, specific money managers were leading the bulls’ herd. Renaissance Technologies, initiated the most outsized position in Ecolab Inc. (NYSE:ECL). Renaissance Technologies had $40.3 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $16.1 million position during the quarter. The other funds with brand new ECL positions are Andrew Byington’s Appian Way Asset Management, Robert Vincent McHugh’s Jade Capital Advisors, and Jinghua Yan’s TwinBeech Capital.

Let’s check out hedge fund activity in other stocks similar to Ecolab Inc. (NYSE:ECL). We will take a look at Northrop Grumman Corporation (NYSE:NOC), DoorDash, Inc. (NYSE:DASH), Emerson Electric Co. (NYSE:EMR), The Progressive Corporation (NYSE:PGR), Humana Inc (NYSE:HUM), KE Holdings Inc (NYSE:BEKE), and CrowdStrike Holdings, Inc. (NASDAQ:CRWD). All of these stocks’ market caps match ECL’s market cap.

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As you can see these stocks had an average of 47.4 hedge funds with bullish positions and the average amount invested in these stocks was $3630 million. That figure was $2773 million in ECL’s case. CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is the most popular stock in this table. On the other hand KE Holdings Inc (NYSE:BEKE) is the least popular one with only 31 bullish hedge fund positions. Ecolab Inc. (NYSE:ECL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ECL is 62. 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. 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 29.6% in 2021 through November 5th and still beat the market by 3.1 percentage points. Hedge funds were also right about betting on ECL as the stock returned 12.2% since the end of Q2 (through 11/5) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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