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Is Eaton Corporation plc (ETN) A Good Stock To Buy?

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As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the fourth quarter of 2019. A significant number of hedge funds continued their strong performance in 2020 and 2021 as well. We get to see hedge funds' thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Eaton Corporation plc (NYSE:ETN).

Is Eaton Corporation plc (NYSE:ETN) a good stock to buy? Investors who are in the know were selling. The number of bullish hedge fund positions fell by 9 recently. Eaton Corporation plc (NYSE:ETN) was in 40 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 49. Our calculations also showed that ETN isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.


Cliff Asness of AQR Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech stock. We go through lists like the 10 best EV 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. With all of this in mind we're going to take a look at the latest hedge fund action surrounding Eaton Corporation plc (NYSE:ETN).

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

At the end of the second quarter, a total of 40 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from the first quarter of 2020. On the other hand, there were a total of 34 hedge funds with a bullish position in ETN a year ago. With hedge funds' sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

According to Insider Monkey's hedge fund database, Suzi Nutton (CEO)'s Lansdowne Partners has the biggest position in Eaton Corporation plc (NYSE:ETN), worth close to $238.6 million, comprising 9.5% of its total 13F portfolio. On Lansdowne Partners's heels is Brandon Haley of Holocene Advisors, with a $199.8 million position; the fund has 1.1% of its 13F portfolio invested in the stock. Some other professional money managers that are bullish include Cliff Asness's AQR Capital Management, Noam Gottesman's GLG Partners and Phill Gross and Robert Atchinson's Adage Capital Management. In terms of the portfolio weights assigned to each position Lansdowne Partners allocated the biggest weight to Eaton Corporation plc (NYSE:ETN), around 9.53% of its 13F portfolio. Socorro Asset Management is also relatively very bullish on the stock, designating 3.47 percent of its 13F equity portfolio to ETN.

Seeing as Eaton Corporation plc (NYSE:ETN) has experienced falling interest from the entirety of the hedge funds we track, it's easy to see that there was a specific group of hedgies who sold off their entire stakes heading into Q3. Intriguingly, Paul Marshall and Ian Wace's Marshall Wace LLP dumped the largest stake of the "upper crust" of funds followed by Insider Monkey, valued at about $17.2 million in stock. Jeffrey Altman's fund, Owl Creek Asset Management, also sold off its stock, about $16.5 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 9 funds heading into Q3.

Let's check out hedge fund activity in other stocks similar to Eaton Corporation plc (NYSE:ETN). We will take a look at Workday Inc (NASDAQ:WDAY), Itau Unibanco Holding SA (NYSE:ITUB), Ecolab Inc. (NYSE:ECL), Northrop Grumman Corporation (NYSE:NOC), DoorDash, Inc. (NYSE:DASH), Emerson Electric Co. (NYSE:EMR), and The Progressive Corporation (NYSE:PGR). This group of stocks' market valuations are closest to ETN's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WDAY,72,5187481,3 ITUB,16,431689,4 ECL,48,2773469,6 NOC,42,1053366,2 DASH,45,8924479,7 EMR,45,854279,0 PGR,44,1338423,-1 Average,44.6,2937598,3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 44.6 hedge funds with bullish positions and the average amount invested in these stocks was $2938 million. That figure was $1062 million in ETN's case. Workday Inc (NASDAQ:WDAY) is the most popular stock in this table. On the other hand Itau Unibanco Holding SA (NYSE:ITUB) is the least popular one with only 16 bullish hedge fund positions. Eaton Corporation plc (NYSE:ETN) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ETN is 41.9. 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 21.8% in 2021 through October 11th and still beat the market by 4.4 percentage points. A small number of hedge funds were also right about betting on ETN as the stock returned 3.4% since the end of the second quarter (through 10/11) and outperformed the market by an even larger margin.

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