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Did Hedge Funds Make The Right Call On Pentair plc (PNR) ?

Debasis Saha

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the first quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Pentair plc (NYSE:PNR) based on that data and determine whether they were really smart about the stock.

Pentair plc (NYSE:PNR) was in 29 hedge funds' portfolios at the end of the first quarter of 2020. PNR shareholders have witnessed an increase in hedge fund sentiment in recent months. There were 26 hedge funds in our database with PNR holdings at the end of the previous quarter. Our calculations also showed that PNR isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (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 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_735677" align="aligncenter" width="400"] Sander Gerber of Hudson Bay Capital[/caption]

Sander Gerber of Hudson Bay Capital
Sander Gerber of Hudson Bay Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Keeping this in mind we're going to view the key hedge fund action encompassing Pentair plc (NYSE:PNR).

What does smart money think about Pentair plc (NYSE:PNR)?

At Q1's end, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of 12% from the fourth quarter of 2019. On the other hand, there were a total of 28 hedge funds with a bullish position in PNR a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

Is PNR A Good Stock To Buy?
Is PNR A Good Stock To Buy?

The largest stake in Pentair plc (NYSE:PNR) was held by Impax Asset Management, which reported holding $247.1 million worth of stock at the end of September. It was followed by Balyasny Asset Management with a $31.4 million position. Other investors bullish on the company included Point72 Asset Management, Citadel Investment Group, and Adage Capital Management. In terms of the portfolio weights assigned to each position Impax Asset Management allocated the biggest weight to Pentair plc (NYSE:PNR), around 3.29% of its 13F portfolio. Prospector Partners is also relatively very bullish on the stock, designating 1.32 percent of its 13F equity portfolio to PNR.

As industrywide interest jumped, some big names were breaking ground themselves. Renaissance Technologies, initiated the most valuable position in Pentair plc (NYSE:PNR). Renaissance Technologies had $2.1 million invested in the company at the end of the quarter. Clint Murray's Lodge Hill Capital also made a $2.1 million investment in the stock during the quarter. The other funds with brand new PNR positions are Jeffrey Moskowitz's Harvey Partners, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, and Sander Gerber's Hudson Bay Capital Management.

Let's go over hedge fund activity in other stocks similar to Pentair plc (NYSE:PNR). These stocks are Morningstar, Inc. (NASDAQ:MORN), Kemper Corporation (NYSE:KMPR), Levi Strauss & Co. (NYSE:LEVI), and Ralph Lauren Corporation (NYSE:RL). This group of stocks' market values resemble PNR's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MORN,13,235862,-8 KMPR,13,48502,-7 LEVI,11,34012,0 RL,26,402740,-11 Average,15.75,180279,-6.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $180 million. That figure was $391 million in PNR's case. Ralph Lauren Corporation (NYSE:RL) is the most popular stock in this table. On the other hand Levi Strauss & Co. (NYSE:LEVI) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Pentair plc (NYSE:PNR) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on PNR as the stock returned 28.4% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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