U.S. Markets closed

Should You Avoid Rockwell Automation Inc. (ROK)?

Abigail Fisher

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips on the charts, usually don't make them change their opinion towards a company. This time it may be different. During the first 6 weeks of the fourth quarter we observed increased volatility and small-cap stocks underperformed the market. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Rockwell Automation Inc. (NYSE:ROK) to find out whether it was one of their high conviction long-term ideas.

Rockwell Automation Inc. (NYSE:ROK) was in 28 hedge funds' portfolios at the end of September. ROK investors should be aware of a decrease in hedge fund sentiment in recent months. There were 30 hedge funds in our database with ROK positions at the end of the previous quarter. Our calculations also showed that ROK isn't among the 30 most popular stocks among hedge funds.

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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 24% through December 3, 2018. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Izzy Englander of MILLENNIUM MANAGEMENT

We're going to take a gander at the key hedge fund action regarding Rockwell Automation Inc. (NYSE:ROK).

What does the smart money think about Rockwell Automation Inc. (NYSE:ROK)?

At the end of the third quarter, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in ROK over the last 13 quarters. With the smart money's sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

ROK_dec2018

According to Insider Monkey's hedge fund database, Millennium Management, managed by Israel Englander, holds the largest position in Rockwell Automation Inc. (NYSE:ROK). Millennium Management has a $214.8 million position in the stock, comprising 0.3% of its 13F portfolio. Coming in second is GLG Partners, managed by Noam Gottesman, which holds a $69.9 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Other peers that hold long positions include Phill Gross and Robert Atchinson's Adage Capital Management, Mario Gabelli's GAMCO Investors and Seth Rosen's Nitorum Capital.

Seeing as Rockwell Automation Inc. (NYSE:ROK) has faced declining sentiment from the entirety of the hedge funds we track, we can see that there exists a select few money managers who were dropping their full holdings in the third quarter. It's worth mentioning that Principal Global Investors's Columbus Circle Investors dumped the largest position of all the hedgies monitored by Insider Monkey, worth about $22.2 million in call options, and Gregg Moskowitz's Interval Partners was right behind this move, as the fund cut about $15 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 2 funds in the third quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Rockwell Automation Inc. (NYSE:ROK) but similarly valued. We will take a look at Rockwell Collins, Inc. (NYSE:COL), Synchrony Financial (NYSE:SYF), Interactive Brokers Group, Inc. (NASDAQ:IBKR), and CenturyLink, Inc. (NYSE:CTL). This group of stocks' market values resemble ROK's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position COL,48,4141035,9 SYF,35,2206905,5 IBKR,29,990268,-4 CTL,24,1711549,3 Average,34,2262439,3.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 34 hedge funds with bullish positions and the average amount invested in these stocks was $2.26 billion. That figure was $634 million in ROK's case. Rockwell Collins, Inc. (NYSE:COL) is the most popular stock in this table. On the other hand CenturyLink, Inc. (NYSE:CTL) is the least popular one with only 24 bullish hedge fund positions. Rockwell Automation Inc. (NYSE:ROK) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. In this regard COL might be a better candidate to consider a long position.

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

Related Content