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Were Hedge Funds Right About Dumping ITT Inc. (ITT)?

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In this article you are going to find out whether hedge funds think ITT Inc. (NYSE:ITT) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is ITT Inc. (NYSE:ITT) a good investment right now? Investors who are in the know were selling. The number of long hedge fund bets shrunk by 10 in recent months. ITT Inc. (NYSE:ITT) was in 18 hedge funds' portfolios at the end of March. The all time high for this statistic is 30. Our calculations also showed that ITT isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

In the financial world there are numerous signals shareholders use to grade publicly traded companies. Some of the less known signals are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the top picks of the elite fund managers can outpace their index-focused peers by a healthy margin (see the details here). Also, our monthly newsletter's portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .

Fred DiSanto Ancora Advisors
Fred DiSanto Ancora Advisors

Fred DiSanto of Ancora Advisors

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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. Now we're going to analyze the latest hedge fund action encompassing ITT Inc. (NYSE:ITT).

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

At first quarter's end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -36% from the fourth quarter of 2020. Below, you can check out the change in hedge fund sentiment towards ITT over the last 23 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is ITT A Good Stock To Buy?
Is ITT A Good Stock To Buy?

More specifically, Paradice Investment Management was the largest shareholder of ITT Inc. (NYSE:ITT), with a stake worth $128.9 million reported as of the end of March. Trailing Paradice Investment Management was Adage Capital Management, which amassed a stake valued at $38.4 million. GAMCO Investors, AQR Capital Management, and Citadel Investment Group 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 Paradice Investment Management allocated the biggest weight to ITT Inc. (NYSE:ITT), around 6.19% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, earmarking 0.43 percent of its 13F equity portfolio to ITT.

Because ITT Inc. (NYSE:ITT) has witnessed falling interest from the smart money, we can see that there was a specific group of hedgies who were dropping their entire stakes last quarter. At the top of the heap, Dmitry Balyasny's Balyasny Asset Management said goodbye to the biggest stake of the 750 funds watched by Insider Monkey, worth about $28.5 million in stock, and Renaissance Technologies was right behind this move, as the fund said goodbye to about $9.4 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 10 funds last quarter.

Let's now take a look at hedge fund activity in other stocks similar to ITT Inc. (NYSE:ITT). We will take a look at Jabil Inc. (NYSE:JBL), Yatsen Holding Limited (NYSE:YSG), Concentrix Corporation (NASDAQ:CNXC), Ternium S.A. (NYSE:TX), Fiverr International Ltd. (NYSE:FVRR), National Retail Properties, Inc. (NYSE:NNN), and Anaplan, Inc. (NYSE:PLAN). This group of stocks' market valuations resemble ITT's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position JBL,24,466622,-4 YSG,20,224997,-6 CNXC,23,576745,2 TX,14,203694,1 FVRR,27,398791,-2 NNN,22,289672,8 PLAN,55,2367556,-8 Average,26.4,646868,-1.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.4 hedge funds with bullish positions and the average amount invested in these stocks was $647 million. That figure was $264 million in ITT's case. Anaplan, Inc. (NYSE:PLAN) is the most popular stock in this table. On the other hand Ternium S.A. (NYSE:TX) is the least popular one with only 14 bullish hedge fund positions. ITT Inc. (NYSE:ITT) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ITT is 17.9. 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 negative signal and 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 28.5% in 2021 through July 23rd and surpassed the market again by 10.1 percentage points. Unfortunately ITT wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); ITT investors were disappointed as the stock returned 6.5% since the end of March (through 7/23) 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 most of these stocks already outperformed the market in 2021.

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