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With the third-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the fourth quarter. One of these stocks was Donaldson Company, Inc. (NYSE:DCI).
Is DCI a good stock to buy? Money managers were in an optimistic mood. The number of bullish hedge fund positions increased by 3 lately. Donaldson Company, Inc. (NYSE:DCI) was in 30 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 27. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that DCI isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 27 hedge funds in our database with DCI holdings at the end of June.
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Ray Dalio of Bridgewater Associates
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 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. 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. Now we're going to take a peek at the key hedge fund action surrounding Donaldson Company, Inc. (NYSE:DCI).
Do Hedge Funds Think DCI Is A Good Stock To Buy Now?
At the end of September, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from the second quarter of 2020. By comparison, 24 hedge funds held shares or bullish call options in DCI a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Impax Asset Management held the most valuable stake in Donaldson Company, Inc. (NYSE:DCI), which was worth $49.1 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $41.4 million worth of shares. GAMCO Investors, Greenhouse Funds, and Balyasny Asset 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 3.49% of its 13F portfolio. Fairpointe Capital is also relatively very bullish on the stock, earmarking 2.67 percent of its 13F equity portfolio to DCI.
As one would reasonably expect, key hedge funds have been driving this bullishness. Greenhouse Funds, managed by Joe Milano, created the most valuable position in Donaldson Company, Inc. (NYSE:DCI). Greenhouse Funds had $22.9 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also made a $21.1 million investment in the stock during the quarter. The other funds with brand new DCI positions are Richard SchimeláandáLawrence Sapanski's Cinctive Capital Management, Steve Cohen's Point72 Asset Management, and Ray Dalio's Bridgewater Associates.
Let's go over hedge fund activity in other stocks similar to Donaldson Company, Inc. (NYSE:DCI). These stocks are PLDT Inc. (NYSE:PHI), Darling Ingredients Inc. (NYSE:DAR), Inphi Corporation (NASDAQ:IPHI), Post Holdings Inc (NYSE:POST), Tenaris S.A. (NYSE:TS), Aluminum Corp. of China Limited (NYSE:ACH), and Ares Management Corp (NYSE:ARES). This group of stocks' market valuations resemble DCI's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PHI,8,95634,3 DAR,31,516814,6 IPHI,34,343353,-12 POST,30,1309099,-4 TS,12,132054,0 ACH,4,4360,-2 ARES,16,412126,-4 Average,19.3,401920,-1.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.3 hedge funds with bullish positions and the average amount invested in these stocks was $402 million. That figure was $287 million in DCI's case. Inphi Corporation (NASDAQ:IPHI) is the most popular stock in this table. On the other hand Aluminum Corp. of China Limited (NYSE:ACH) is the least popular one with only 4 bullish hedge fund positions. Donaldson Company, Inc. (NYSE:DCI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DCI is 81.3. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. Hedge funds were also right about betting on DCI as the stock returned 21.9% since the end of Q3 (through 12/18) 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.