5 Capital Goods Stocks Hedge Funds Were Dumping in Q3

Capital Goods stocks have experienced a great November after Donald Trump’s victory sparked a rally in the entire sector. Most stocks spiked on the back of the promise of higher infrastructure spending. Defence manufacturers also saw higher stock prices as the new Republican administration is expected to increase the spending on the country’s defence. Some capital goods stocks saw heavy selling by prominent hedge funds during the third quarter and these funds must be regretting their decision now, as many of the same stocks are currently trading at their yearly highs. In this article, we look at 5 capital good stocks that saw significant dumping by hedge funds.

We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively the most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs.

Steve Cohen’s Point72 Asset Management was the largest seller of Roper Technologies Inc. (NYSE:ROP) during third quarter, as the fund reduced its portfolio holding of the stock from 0.57% to just 0.08%. In addition, Gotham Asset Management, Renaissance Technologies, Janus Capital and Everpoint Asset Management were some of the other hedge funds which reduced Roper Technologies Inc. (NYSE:ROP) holding in the third quarter. Roper Technologies Inc. (NYSE:ROP) has seen its stock price decline by around 2% over the last one year, though it has seen its performance increase with the rest of the capital goods sector over the last one month. This industrial technology company is expected to see full year earnings stagnate to $6.55  a share as per analyst estimates. Most analysts have rated this stock as a buy or a hold. The company management recently said that it would buy ConstructConnect, which is a major provider of cloud-based services to the construction industry for $632 million. The number of hedge funds from our database having this stock in their portfolios declined significantly by 12 to 18 in the third quarter.

Thermo Fisher Scientific Inc. (NYSE:TMO), one of the largest manufacturers of analytical instruments for the medical industry, saw the number of funds as per our records decline by 11 to 46 during the third quarter. Capital Research Global Investors, Sound Shore Management and Orbimed Advisors were the three largest sellers of the shares at the end of the third quarter. New York based hedge fund Healthcore Management sold its entire position in the stock by dumping 233,245 shares. Analysts are mostly bullish on the stock, with 17 analysts rating the stock as a buy out of the 20 analysts covering the stock. Thermo Fisher Scientific Inc. (NYSE:TMO) recently announced that it would buy microscope technology maker FEI Company (NASDAQ:FEIC) for $4.2 billion in cash, at $107.50 a share.

General Dynamics Corporation (NYSE:GD) is another capital goods stock that saw major selling by large hedge funds during the third quarter. According to our database, 11 hedge funds exited the stock during the period, bringing the number of funds we track long the equity down to 40 by September end. However the value of their holdings increased to $7.2 billion from $6.5 billion quarter over quarter. Among the funds that sold include D.E. Shaw, which sold 1.1 million shares of this stock reducing its portfolio holding from 0.4% to just 0.1% of its 13F portfolio. Billionaire investor James Simon’s hedge fund Renaissance Technologies was the second largest hedge fund seller, liquidating its entire position of 852,300 shares. These funds must be ruing their decision as the stock has climbed up by 13.5% in the last month alone and is trading at its yearly high price of $178.

Textron Inc. (NYSE:TXT) is a major aircraft and defence manufacturer which saw significant sales from major elite funds for the quarter ending September. Like General Dynamics Corporation (NYSE:GD), this defence stock is trading near its yearly highs, as investors have favoured the aviation and defence industry in the month of November. D.E. Shaw sold all of its stock, while other funds such as Citadel Advisors, Artisan Partners and Millennium Management also sold large chunks of Textron Inc. (NYSE:TXT). The stock trades at an earnings multiple of 16x and pays a dividend yield of 0.17%. According to our system, 17 hedge funds held 4.5% of the company’s float as of September 30th down from 27 in the quarter earlier.

United Technologies Corporation (NYSE:UTX) is one of the largest capital goods manufacturers in the world with a strong presence in both the building and aviation industries. Citadel Advisors, Gotham Asset Management and Adage Capital Partners were the three largest hedge funds selling this stock in Q3. In addition, Steve Cohen’s Point72 Asset Management sold off its entire stake of 499,110 shares during their quarter. The company raised its full year guidance for a 2-3% growth in organic sales, up from the earlier guidance of 1-3% growth in full year sales. During the third quarter, United Technologies Corporation (NYSE:UTX) reported 4.1% growth in revenues to $14.35 billion, while profit climbed up by 8% to $1.48 billion. The number of funds that we track having United Technologies Corporation (NYSE:UTX) in their portfolios declined to 48 from 56 in the earlier quarter.

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