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Is DCI Stock A Buy or Sell?

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  • DCI

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don't make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Donaldson Company, Inc. (NYSE:DCI) to find out whether there were any major changes in hedge funds' views.

Is DCI stock a buy? Donaldson Company, Inc. (NYSE:DCI) was in 26 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 30. DCI investors should pay attention to a decrease in enthusiasm from smart money lately. There were 30 hedge funds in our database with DCI holdings at the end of September. Our calculations also showed that DCI isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

Peter Rathjens Arrowstreet Capital 394
Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. 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. Keeping this in mind we're going to take a look at the fresh hedge fund action encompassing Donaldson Company, Inc. (NYSE:DCI).

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

At the end of the fourth quarter, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in DCI over the last 22 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

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

More specifically, Impax Asset Management was the largest shareholder of Donaldson Company, Inc. (NYSE:DCI), with a stake worth $75.3 million reported as of the end of December. Trailing Impax Asset Management was Greenhouse Funds, which amassed a stake valued at $33.4 million. Arrowstreet Capital, GAMCO Investors, 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 3.11% of its 13F portfolio. Fairpointe Capital is also relatively very bullish on the stock, setting aside 2.97 percent of its 13F equity portfolio to DCI.

Judging by the fact that Donaldson Company, Inc. (NYSE:DCI) has experienced a decline in interest from hedge fund managers, it's easy to see that there is a sect of fund managers that slashed their entire stakes last quarter. It's worth mentioning that Phill Gross and Robert Atchinson's Adage Capital Management dropped the biggest position of the 750 funds watched by Insider Monkey, worth close to $20.8 million in stock. Steve Cohen's fund, Point72 Asset Management, also sold off its stock, about $1.9 million worth. These transactions are important to note, as total hedge fund interest was cut by 4 funds last quarter.

Let's check out hedge fund activity in other stocks similar to Donaldson Company, Inc. (NYSE:DCI). These stocks are Redfin Corporation (NASDAQ:RDFN), SiteOne Landscape Supply, Inc. (NYSE:SITE), Royal Gold, Inc (NASDAQ:RGLD), Cleveland-Cliffs Inc (NYSE:CLF), Lemonade, Inc. (NYSE:LMND), Lincoln Electric Holdings, Inc. (NASDAQ:LECO), and Pearson PLC (NYSE:PSO). This group of stocks' market values are closest to DCI's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RDFN,21,209673,-7 SITE,17,72044,-11 RGLD,26,284227,-4 CLF,27,682934,5 LMND,13,211852,-2 LECO,20,273498,-4 PSO,5,20277,0 Average,18.4,250644,-3.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.4 hedge funds with bullish positions and the average amount invested in these stocks was $251 million. That figure was $312 million in DCI's case. Cleveland-Cliffs Inc (NYSE:CLF) is the most popular stock in this table. On the other hand Pearson PLC (NYSE:PSO) is the least popular one with only 5 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 74.7. 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and beat the market again by 0.9 percentage points. Unfortunately DCI wasn't nearly as popular as these 30 stocks and hedge funds that were betting on DCI were disappointed as the stock returned 8.9% since the end of December (through 4/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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

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