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Is ITW Stock A Buy or Sell?

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Abigail Fisher
·6 min read
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In this article we will take a look at whether hedge funds think Illinois Tool Works Inc. (NYSE:ITW) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is ITW stock a buy or sell? The best stock pickers were turning bullish. The number of bullish hedge fund positions inched up by 1 in recent months. Illinois Tool Works Inc. (NYSE:ITW) was in 40 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 39. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ITW isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 39 hedge funds in our database with ITW holdings at the end of September.

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. 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 124 percentage points since March 2017 (see the details here).

Tom Gayner
Tom Gayner

Tom Gayner of Markel Gayner Asset Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 10 best battery stocks to buy 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 go over the key hedge fund action encompassing Illinois Tool Works Inc. (NYSE:ITW).

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

At the end of December, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ITW over the last 22 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey's hedge fund database, AQR Capital Management, managed by Cliff Asness, holds the biggest position in Illinois Tool Works Inc. (NYSE:ITW). AQR Capital Management has a $170.2 million position in the stock, comprising 0.3% of its 13F portfolio. The second most bullish fund manager is Millennium Management, led by Israel Englander, holding a $152 million position; 0.1% of its 13F portfolio is allocated to the company. Other members of the smart money that are bullish contain Tom Gayner's Markel Gayner Asset Management, Renaissance Technologies and D. E. Shaw's D E Shaw. In terms of the portfolio weights assigned to each position Jade Capital Advisors allocated the biggest weight to Illinois Tool Works Inc. (NYSE:ITW), around 2.63% of its 13F portfolio. Arjuna Capital is also relatively very bullish on the stock, designating 1.97 percent of its 13F equity portfolio to ITW.

Consequently, some big names were breaking ground themselves. Scopus Asset Management, managed by Alexander Mitchell, assembled the most valuable position in Illinois Tool Works Inc. (NYSE:ITW). Scopus Asset Management had $9.2 million invested in the company at the end of the quarter. Greg Eisner's Engineers Gate Manager also initiated a $3.5 million position during the quarter. The following funds were also among the new ITW investors: Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors, Jinghua Yan's TwinBeech Capital, and Greg Poole's Echo Street Capital Management.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Illinois Tool Works Inc. (NYSE:ITW) but similarly valued. We will take a look at Global Payments Inc (NYSE:GPN), Equinix Inc (REIT) (NASDAQ:EQIX), The PNC Financial Services Group Inc. (NYSE:PNC), Brookfield Asset Management Inc. (NYSE:BAM), Ecolab Inc. (NYSE:ECL), Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX), and Dominion Energy Inc. (NYSE:D). This group of stocks' market values are similar to ITW's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GPN,55,5554643,-2 EQIX,42,2001101,0 PNC,35,188415,-2 BAM,38,1330514,3 ECL,45,2449625,-7 VRTX,53,3108859,-2 D,47,1506824,10 Average,45,2305712,0 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 45 hedge funds with bullish positions and the average amount invested in these stocks was $2306 million. That figure was $704 million in ITW's case. Global Payments Inc (NYSE:GPN) is the most popular stock in this table. On the other hand The PNC Financial Services Group Inc. (NYSE:PNC) is the least popular one with only 35 bullish hedge fund positions. Illinois Tool Works Inc. (NYSE:ITW) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ITW is 48.5. 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 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 5.3% in 2021 through March 19th and still beat the market by 0.8 percentage points. A small number of hedge funds were also right about betting on ITW as the stock returned 7.3% since the end of the fourth quarter (through 3/19) and outperformed the market by an even larger margin.

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

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