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Parker-Hannifin Corporation (PH) Fell Out Of Favor With Hedge Funds

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Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Parker-Hannifin Corporation (NYSE:PH)? The smart money sentiment can provide an answer to this question.

Parker-Hannifin Corporation (NYSE:PH) was in 43 hedge funds' portfolios at the end of March. The all time high for this statistic is 56. PH has seen a decrease in activity from the world's largest hedge funds lately. There were 56 hedge funds in our database with PH positions at the end of the fourth quarter. Our calculations also showed that PH isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Andreas Halvorsen
Andreas Halvorsen

Andreas Halvorsen of Viking Global

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation, which is why we are checking out this inflation play. We go through lists like 10 best gold stocks to buy to identify promising stocks. 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 new hedge fund action surrounding Parker-Hannifin Corporation (NYSE:PH).

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

At first quarter's end, a total of 43 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -23% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards PH over the last 23 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.

Is PH A Good Stock To Buy?
Is PH A Good Stock To Buy?

More specifically, Diamond Hill Capital was the largest shareholder of Parker-Hannifin Corporation (NYSE:PH), with a stake worth $448.1 million reported as of the end of March. Trailing Diamond Hill Capital was Viking Global, which amassed a stake valued at $258.1 million. Adage Capital Management, Alyeska Investment Group, and D E Shaw 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 Albar Capital allocated the biggest weight to Parker-Hannifin Corporation (NYSE:PH), around 10.72% of its 13F portfolio. Unio Capital is also relatively very bullish on the stock, dishing out 3.9 percent of its 13F equity portfolio to PH.

Because Parker-Hannifin Corporation (NYSE:PH) has faced a decline in interest from the entirety of the hedge funds we track, we can see that there was a specific group of hedgies that elected to cut their entire stakes heading into Q2. Intriguingly, Zach Schreiber's Point State Capital sold off the largest stake of the 750 funds tracked by Insider Monkey, totaling close to $50.8 million in stock, and Renaissance Technologies was right behind this move, as the fund dumped about $26.8 million worth. These moves are interesting, as total hedge fund interest was cut by 13 funds heading into Q2.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Parker-Hannifin Corporation (NYSE:PH) but similarly valued. We will take a look at Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC), Bilibili Inc. (NASDAQ:BILI), SYSCO Corporation (NYSE:SYY), Sempra Energy (NYSE:SRE), Chipotle Mexican Grill, Inc. (NYSE:CMG), Lululemon Athletica inc. (NASDAQ:LULU), and American International Group Inc (NYSE:AIG). This group of stocks' market valuations match PH's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ERIC,19,317626,-1 BILI,53,3015445,7 SYY,42,2719253,2 SRE,27,596834,-6 CMG,41,3037666,6 LULU,41,751855,-9 AIG,33,2471193,-8 Average,36.6,1844267,-1.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.6 hedge funds with bullish positions and the average amount invested in these stocks was $1844 million. That figure was $1260 million in PH's case. Bilibili Inc. (NASDAQ:BILI) is the most popular stock in this table. On the other hand Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC) is the least popular one with only 19 bullish hedge fund positions. Parker-Hannifin Corporation (NYSE:PH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PH is 50.3. 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. 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 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 17.4% in 2021 through June 18th and beat the market again by 6.1 percentage points. Unfortunately PH wasn't nearly as popular as these 5 stocks and hedge funds that were betting on PH were disappointed as the stock returned -10.6% since the end of March (through 6/18) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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