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Donaldson Company, Inc. (DCI): Are Hedge Funds Right About This Stock?

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Should be investors bullish on Donaldson Company, Inc. (NYSE:DCI)?

To many traders, hedge funds are assumed to be bloated, outdated financial vehicles of an era lost to time. Although there are more than 8,000 hedge funds trading currently, Insider Monkey looks at the leaders of this group, around 525 funds. It is widely held that this group has its hands on the majority of all hedge funds’ total capital, and by watching their highest quality stock picks, we’ve unearthed a number of investment strategies that have historically outstripped the S&P 500. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points a year for a decade in our back tests, and since we‘ve began to sharing our picks with our subscribers at the end of August 2012, we have trumped the S&P 500 index by 33 percentage points in 11 months (see all of our picks from August).

Just as crucial, positive insider trading activity is another way to look at the world of equities. Obviously, there are plenty of reasons for an executive to sell shares of his or her company, but just one, very simple reason why they would initiate a purchase. Several empirical studies have demonstrated the valuable potential of this method if shareholders understand where to look (learn more here).

Now that that’s out of the way, it’s important to study the newest info for Donaldson Company, Inc. (NYSE:DCI).

Donaldson Company, Inc. (NYSE:DCI)

Hedge fund activity in Donaldson Company, Inc. (NYSE:DCI)

In preparation for the third quarter, a total of 15 of the hedge funds we track were long in this stock, a change of 7% from the first quarter. With the smart money’s sentiment swirling, there exists a few key hedge fund managers who were increasing their stakes meaningfully.

According to our 13F database, GAMCO Investors, managed by Mario Gabelli, holds the largest position in Donaldson Company, Inc. (NYSE:DCI). GAMCO Investors has a $76.7 million position in the stock, comprising 0.5% of its 13F portfolio. Coming in second is Royce & Associates, managed by Chuck Royce, which held a $39.8 million position; 0.1% of its 13F portfolio is allocated to the stock. Other hedgies with similar optimism include Ian Simm’s Impax Asset Management, Israel Englander’s Millennium Management and D. E. Shaw’s D E Shaw.

As industrywide interest increased, particular hedge funds have been driving this bullishness. GAMCO Investors, managed by Mario Gabelli, initiated the biggest position in Donaldson Company, Inc. (NYSE:DCI). GAMCO Investors had 76.7 million invested in the company at the end of the quarter. Chuck Royce’s Royce & Associates also initiated a $39.8 million position during the quarter. The other funds with new positions in the stock are Ian Simm’s Impax Asset Management, Israel Englander’s Millennium Management, and D. E. Shaw’s D E Shaw.

How have insiders been trading Donaldson Company, Inc. (NYSE:DCI)?

Legal insider trading, particularly when it’s bullish, is at its handiest when the company we’re looking at has seen transactions within the past six months. Over the last half-year time frame, Donaldson Company, Inc. (NYSE:DCI) has seen zero unique insiders purchasing, and zero insider sales (see the details of insider trades here).

We’ll also take a look at the relationship between both of these indicators in other stocks similar to Donaldson Company, Inc. (NYSE:DCI). These stocks are ADA-ES, Inc. (NASDAQ:ADES), Heritage-Crystal Clean, Inc. (NASDAQ:HCCI), Tennant Company (NYSE:TNC), Calgon Carbon Corporation (NYSE:CCC), and CLARCOR Inc. (NYSE:CLC). This group of stocks belong to the pollution & treatment controls industry and their market caps are closest to DCI’s market cap.

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