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Five Capital Goods Stocks Hedge Funds Are Betting On

We at Insider Monkey follow over 760 hedge funds and other institutional investors. Given that the smart money has hundreds of Ivy League graduates at their disposal and millions of dollars in research budgets, they can do a better job at picking stocks than the average investor. Seeing as how SEC rules require major hedge funds to share their portfolio holdings at the end of the quarter, let’s take a look at some of the smart money’s favorite capital good stocks, including General Motors Company (NYSE:GM), Honeywell International Inc. (NYSE:HON), United Technologies Corporation (NYSE:UTX), Thermo Fisher Scientific Inc. (NYSE:TMO), and Danaher Corporation (NYSE:DHR).
General Motors Company (NYSE:GM), showroom, car, Cadillac

TonyV3112 / Shutterstock.com

Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on, can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see the details here).

#5 Danaher Corporation (NYSE:DHR)

– Number of Hedge Fund Holders (as of March 31): 46
– Total Value of Hedge Fund Holdings (as of March 31): $2.2 billion
– Hedge Fund Holdings as Percent of Float (as of March 31): 3.40%

A total of 46 funds from our database held shares of Danaher Corporation (NYSE:DHR) at the end of March, up six from that of the previous quarter. Among the funds that added to their holdings was Dan Loeb’s Third Point, which raised its stake by 65% to 3.7 million shares. The 3.7 million shares accounted for 3.23% of Third Point’s equity portfolio and was the fund’s eighth largest holding. Danaher plans to officially spin-off Fortive Corporation in early July in a move that could potentially unlock the value of the shares.

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#4 Thermo Fisher Scientific Inc. (NYSE:TMO)

– Number of Hedge Fund Holders (as of March 31): 50
– Total Value of Hedge Fund Holdings (as of March 31): $2.44 billion
– Hedge Fund Holdings as Percent of Float (as of March 31): 4.40%

Thermo Fisher Scientific Inc. (NYSE:TMO) recently announced that it agreed to purchase FEI Company (NASDAQ:FEIC) for $4.2 billion in cash, or $107.50 per share. FEI is a leader in high-performance electron microscopy and reported revenues of $930 million in 2015. Thermo Fisher management believes the transaction will add $0.30 in adjusted EPS in the first full year after close. The company expects total synergies of around $80 million by year three. Shares are up 7% year-to-date so far.

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#3 United Technologies Corporation (NYSE:UTX)

– Number of Hedge Fund Holders (as of March 31): 51
– Total Value of Hedge Fund Holdings (as of March 31): $3.81 billion
– Hedge Fund Holdings as Percent of Float (as of March 31): 4.60%

United Technologies Corporation (NYSE:UTX)’s scale and stability ensures that its dividend is very safe. The company has raised its dividend for more than 20 straight years and has grown its dividend by an average of 8% a year for the last five years. For its most recent quarter, United Technologies Corporation continued its dividend raising tradition, hiking its quarterly dividend up by $0.02 to $0.66 per share. That gives United Technologies Corporation a dividend yield of 2.62%, or around 50% higher than the current 10-year yield.

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#2 Honeywell International Inc. (NYSE:HON)

– Number of Hedge Fund Holders (as of March 31): 55
– Total Value of Hedge Fund Holdings (as of March 31): $1.84 billion
– Hedge Fund Holdings as Percent of Float (as of March 31): 2.10%

Honeywell International Inc. (NYSE:HON) reported excellent earnings for its first quarter, with EPS of $1.53 on revenue of $9.52 billion, beating by $0.03 per share and $150 million. Despite the strong dollar, revenue grew 3.4% year-over-year, led by a 13% jump in automation and control solutions sales. Guidance is strong, with management raising the 2016 adjusted EPS outlook to $6.55-$6.70 from the previous $6.45-$6.70. In late April, the company’s board also authorized a repurchase of $5 billion. Overall, 55 funds tracked by Insider Monkey owned $1.84 billion worth of Honeywell International Inc. (NYSE:HON)’s shares, which accounted for 2.10% of the float on March 31, versus 49 funds and $2.05 billion a quarter earlier.

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#1 General Motors Company (NYSE:GM)

– Number of Hedge Fund Holders (as of March 31): 67
– Total Value of Hedge Fund Holdings (as of March 31): $3.72 billion
– Hedge Fund Holdings as Percent of Float (as of March 31): 7.60%

With 67 elite fund holders holding shares of the company at the end of March, General Motors Company (NYSE:GM) is the top capital goods stock in our list. Shares yield a 4.84% payout at current prices, making General Motors, which has one of the widest moats in the industry, one of the most attractive dividend offerings on the market. Warren Buffett’s Berkshire Hathaway kept its stake in GM the same quarter-over-quarter at 50 million shares, while David Einhorn’s Greenlight Capital raised its holding by 10% to over 15 million shares.

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Disclosure: none

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