Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. 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 fourth 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 years and analyze what the smart money thinks of Parker-Hannifin Corporation (NYSE:PH) based on that data.
Is Parker-Hannifin Corporation (NYSE:PH) an exceptional stock to buy now? Prominent investors are becoming hopeful. The number of long hedge fund positions increased by 11 lately. Our calculations also showed that PH isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). PH was in 39 hedge funds' portfolios at the end of the fourth quarter of 2019. There were 28 hedge funds in our database with PH positions at the end of the previous quarter. Video: Click the image to 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 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 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.
[caption id="attachment_758429" align="aligncenter" width="400"] Ric Dillon of Diamond Hill Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Now we're going to review the key hedge fund action regarding Parker-Hannifin Corporation (NYSE:PH).
How have hedgies been trading Parker-Hannifin Corporation (NYSE:PH)?
At the end of the fourth quarter, a total of 39 of the hedge funds tracked by Insider Monkey were long this stock, a change of 39% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PH over the last 18 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Diamond Hill Capital was the largest shareholder of Parker-Hannifin Corporation (NYSE:PH), with a stake worth $327.4 million reported as of the end of September. Trailing Diamond Hill Capital was Citadel Investment Group, which amassed a stake valued at $193.1 million. Holocene Advisors, Alyeska Investment Group, and Pzena Investment 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 Sustainable Insight Capital Management allocated the biggest weight to Parker-Hannifin Corporation (NYSE:PH), around 2.95% of its 13F portfolio. Appian Way Asset Management is also relatively very bullish on the stock, dishing out 1.83 percent of its 13F equity portfolio to PH.
With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Holocene Advisors, managed by Brandon Haley, initiated the biggest position in Parker-Hannifin Corporation (NYSE:PH). Holocene Advisors had $97.8 million invested in the company at the end of the quarter. Gregg Moskowitz's Interval Partners also initiated a $24.9 million position during the quarter. The other funds with brand new PH positions are Michael Kharitonov and Jon David McAuliffe's Voleon Capital, Dmitry Balyasny's Balyasny Asset Management, and Andrew Byington's Appian Way Asset Management.
Let's go over hedge fund activity in other stocks similar to Parker-Hannifin Corporation (NYSE:PH). We will take a look at 0, FirstEnergy Corp. (NYSE:FE), Spotify Technology S.A. (NYSE:SPOT), and Centene Corporation (NYSE:CNC). All of these stocks' market caps are similar to PH's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BKR,37,573421,3 FE,40,1419463,5 SPOT,38,1558227,-2 CNC,62,3049441,3 Average,44.25,1650138,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 44.25 hedge funds with bullish positions and the average amount invested in these stocks was $1650 million. That figure was $971 million in PH's case. Centene Corporation (NYSE:CNC) is the most popular stock in this table. On the other hand 0 is the least popular one with only 37 bullish hedge fund positions. Parker-Hannifin Corporation (NYSE:PH) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but beat the market by 3.1 percentage points. Unfortunately PH wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PH investors were disappointed as the stock returned -28% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.