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Pentair plc (PNR): Are Hedge Funds Right About This Stock?

Reymerlyn Martin

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Pentair plc (NYSE:PNR).

Is Pentair plc (NYSE:PNR) an excellent investment now? Hedge funds are in an optimistic mood. The number of bullish hedge fund positions went up by 1 in recent months. Our calculations also showed that PNR isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_746830" align="aligncenter" width="1613"] Matthew Hulsizer of PEAK6 Capital[/caption]

Matthew Hulsizer PEAK6 Capital

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's check out the recent hedge fund action regarding Pentair plc (NYSE:PNR).

Hedge fund activity in Pentair plc (NYSE:PNR)

Heading into the fourth quarter of 2019, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards PNR over the last 17 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, Impax Asset Management was the largest shareholder of Pentair plc (NYSE:PNR), with a stake worth $265.7 million reported as of the end of September. Trailing Impax Asset Management was Adage Capital Management, which amassed a stake valued at $37.5 million. Balyasny Asset Management, AQR Capital Management, 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 Impax Asset Management allocated the biggest weight to Pentair plc (NYSE:PNR), around 3.46% of its 13F portfolio. Prospector Partners is also relatively very bullish on the stock, dishing out 0.71 percent of its 13F equity portfolio to PNR.

Consequently, key hedge funds have jumped into Pentair plc (NYSE:PNR) headfirst. Centenus Global Management, managed by Sara Nainzadeh, initiated the most valuable position in Pentair plc (NYSE:PNR). Centenus Global Management had $4 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital also made a $0.3 million investment in the stock during the quarter. The other funds with brand new PNR positions are Matthew Hulsizer's PEAK6 Capital Management and Gavin Saitowitz and Cisco J. del Valle's Springbok Capital.

Let's also examine hedge fund activity in other stocks similar to Pentair plc (NYSE:PNR). These stocks are Buckeye Partners, L.P. (NYSE:BPL), Elastic N.V. (NYSE:ESTC), Genesee & Wyoming Inc (NYSE:GWR), and Dr. Reddy's Laboratories Limited (NYSE:RDY). This group of stocks' market valuations match PNR's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BPL,18,536490,5 ESTC,30,867426,3 GWR,31,783531,5 RDY,13,95340,2 Average,23,570697,3.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $571 million. That figure was $416 million in PNR's case. Genesee & Wyoming Inc (NYSE:GWR) is the most popular stock in this table. On the other hand Dr. Reddy's Laboratories Limited (NYSE:RDY) is the least popular one with only 13 bullish hedge fund positions. Pentair plc (NYSE:PNR) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on PNR as the stock returned 17.9% during the first two months of Q4 and outperformed the market by an even larger margin.

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

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