Is Ingersoll-Rand Plc (NYSE:IR) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Is Ingersoll-Rand Plc (NYSE:IR) the right investment to pursue these days? The best stock pickers are buying. The number of bullish hedge fund positions increased by 1 lately. Our calculations also showed that IR isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to review the new hedge fund action regarding Ingersoll-Rand Plc (NYSE:IR).
What have hedge funds been doing with Ingersoll-Rand Plc (NYSE:IR)?
At the end of the second quarter, a total of 40 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in IR over the last 16 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Ingersoll-Rand Plc (NYSE:IR) was held by Generation Investment Management, which reported holding $360.5 million worth of stock at the end of March. It was followed by Citadel Investment Group with a $288.3 million position. Other investors bullish on the company included AQR Capital Management, Alyeska Investment Group, and Impax Asset Management.
With a general bullishness amongst the heavyweights, key hedge funds were leading the bulls' herd. Suvretta Capital Management, managed by Aaron Cowen, established the most valuable position in Ingersoll-Rand Plc (NYSE:IR). Suvretta Capital Management had $96 million invested in the company at the end of the quarter. Jeffrey Gates's Gates Capital Management also initiated a $88.8 million position during the quarter. The following funds were also among the new IR investors: Javier Velazquez's Albar Capital, Matthew Hulsizer's PEAK6 Capital Management, and Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners.
Let's check out hedge fund activity in other stocks similar to Ingersoll-Rand Plc (NYSE:IR). We will take a look at Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN), Paychex, Inc. (NASDAQ:PAYX), Credit Suisse Group AG (NYSE:CS), and O'Reilly Automotive Inc (NASDAQ:ORLY). This group of stocks' market values are similar to IR's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALXN,44,2636589,9 PAYX,34,862198,13 CS,11,217760,-3 ORLY,50,1820132,7 Average,34.75,1384170,6.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.75 hedge funds with bullish positions and the average amount invested in these stocks was $1384 million. That figure was $2101 million in IR's case. O'Reilly Automotive Inc (NASDAQ:ORLY) is the most popular stock in this table. On the other hand Credit Suisse Group AG (NYSE:CS) is the least popular one with only 11 bullish hedge fund positions. Ingersoll-Rand Plc (NYSE:IR) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately IR wasn't nearly as popular as these 20 stocks and hedge funds that were betting on IR were disappointed as the stock returned -2.3% during the third quarter 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.