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Should I Buy Donaldson Company, Inc. (DCI)?

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  • DCI
  • ^GSPC

At Insider Monkey, we pore over the filings of nearly 866 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of March 31st. In this article, we will use that wealth of knowledge to determine whether or not Donaldson Company, Inc. (NYSE:DCI) makes for a good investment right now.

Donaldson Company, Inc. (NYSE:DCI) has experienced an increase in enthusiasm from smart money in recent months. Donaldson Company, Inc. (NYSE:DCI) was in 28 hedge funds' portfolios at the end of March. The all time high for this statistic is 30. Our calculations also showed that DCI isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

In today’s marketplace there are numerous methods shareholders use to assess publicly traded companies. Two of the less utilized methods are hedge fund and insider trading signals. Our researchers have shown that, historically, those who follow the top picks of the top fund managers can outpace the S&P 500 by a significant margin (see the details here). Also, our monthly newsletter's portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .

Bruce Kovner, Caxton Associates LP
Bruce Kovner, Caxton Associates LP

Bruce Kovner of Caxton Associates LP

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, economists warn of inflation flare up. So, we are checking out this backdoor gold play that has hit peak gains of 718% in a little over a year. We go through lists like the 10 best battery 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. Now we're going to view the recent hedge fund action surrounding Donaldson Company, Inc. (NYSE:DCI).

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

At Q1's end, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from the previous quarter. On the other hand, there were a total of 20 hedge funds with a bullish position in DCI a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

Is DCI A Good Stock To Buy?
Is DCI A Good Stock To Buy?

Among these funds, Impax Asset Management held the most valuable stake in Donaldson Company, Inc. (NYSE:DCI), which was worth $96.5 million at the end of the fourth quarter. On the second spot was Greenhouse Funds which amassed $36.4 million worth of shares. Millennium Management, GAMCO Investors, 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 Greenhouse Funds allocated the biggest weight to Donaldson Company, Inc. (NYSE:DCI), around 3.9% of its 13F portfolio. Fairpointe Capital is also relatively very bullish on the stock, setting aside 0.91 percent of its 13F equity portfolio to DCI.

With a general bullishness amongst the heavyweights, specific money managers were leading the bulls' herd. Paloma Partners, managed by Donald Sussman, initiated the most valuable position in Donaldson Company, Inc. (NYSE:DCI). Paloma Partners had $1.4 million invested in the company at the end of the quarter. Jinghua Yan's TwinBeech Capital also made a $0.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Karim Abbadi and Edward McBride's Centiva Capital, Bruce Kovner's Caxton Associates LP, and Gavin Saitowitz and Cisco J. del Valle's Prelude Capital (previously Springbok Capital).

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Donaldson Company, Inc. (NYSE:DCI) but similarly valued. We will take a look at Hill-Rom Holdings, Inc. (NYSE:HRC), Advanced Drainage Systems Inc. (NYSE:WMS), BRP Inc. (NASDAQ:DOOO), Euronet Worldwide, Inc. (NASDAQ:EEFT), Targa Resources Corp (NYSE:TRGP), Virgin Galactic Holdings, Inc. (NYSE:SPCE), and Tripadvisor Inc (NASDAQ:TRIP). All of these stocks' market caps are closest to DCI's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HRC,30,454507,2 WMS,29,1220549,4 DOOO,17,196834,2 EEFT,40,511517,8 TRGP,24,531977,-5 SPCE,17,210974,-6 TRIP,45,1975906,4 Average,28.9,728895,1.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.9 hedge funds with bullish positions and the average amount invested in these stocks was $729 million. That figure was $279 million in DCI's case. Tripadvisor Inc (NASDAQ:TRIP) is the most popular stock in this table. On the other hand BRP Inc. (NASDAQ:DOOO) is the least popular one with only 17 bullish hedge fund positions. Donaldson Company, Inc. (NYSE:DCI) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for DCI is 54.6. 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 24% in 2021 through July 9th and beat the market by 6.7 percentage points. A small number of hedge funds were also right about betting on DCI, though not to the same extent, as the stock returned 12.5% since the end of Q1 (through July 9th) and outperformed the market.

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