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Hedge Funds Are Crazy About Donaldson Company, Inc. (DCI)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 700 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their September 30 holdings, data that is available nowhere else. Should you consider Donaldson Company, Inc. (NYSE:DCI) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.

Donaldson Company, Inc. (NYSE:DCI) shareholders have witnessed an increase in support from the world’s most elite money managers lately. DCI was in 17 hedge funds’ portfolios at the end of September. There were 12 hedge funds in our database with DCI positions at the end of the previous quarter. Our calculations also showed that DCI isn’t among the 30 most popular stocks among hedge funds.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

GAMCO Investors, Mario Gabelli

We’re going to take a glance at the key hedge fund action regarding Donaldson Company, Inc. (NYSE:DCI).

How are hedge funds trading Donaldson Company, Inc. (NYSE:DCI)?

Heading into the fourth quarter of 2018, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 42% from the previous quarter. By comparison, 21 hedge funds held shares or bullish call options in DCI heading into this year. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

DCI_dec2018

Among these funds, GAMCO Investors held the most valuable stake in Donaldson Company, Inc. (NYSE:DCI), which was worth $52.6 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $39.9 million worth of shares. Moreover, Impax Asset Management, Millennium Management, and Royce & Associates were also bullish on Donaldson Company, Inc. (NYSE:DCI), allocating a large percentage of their portfolios to this stock.

Consequently, key money managers were leading the bulls’ herd. GLG Partners, managed by Noam Gottesman, initiated the biggest position in Donaldson Company, Inc. (NYSE:DCI). GLG Partners had $3.9 million invested in the company at the end of the quarter. Matthew Tewksbury’s Stevens Capital Management also made a $3.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Joel Greenblatt’s Gotham Asset Management, Michael Platt and William Reeves’s BlueCrest Capital Mgmt., and Ken Griffin’s Citadel Investment Group.

Let’s now take a look at hedge fund activity in other stocks similar to Donaldson Company, Inc. (NYSE:DCI). We will take a look at Telecom Argentina S.A. (NYSE:TEO), Helmerich & Payne, Inc. (NYSE:HP), Fortune Brands Home & Security Inc (NYSE:FBHS), and Ingredion Inc (NYSE:INGR). This group of stocks’ market valuations match DCI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TEO 9 55173 -5
HP 33 369830 7
FBHS 33 597687 -4
INGR 21 338525 -1
Average 24 340304 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $340 million. That figure was $176 million in DCI’s case. Helmerich & Payne, Inc. (NYSE:HP) is the most popular stock in this table. On the other hand Telecom Argentina S.A. (NYSE:TEO) is the least popular one with only 9 bullish hedge fund positions. Donaldson Company, Inc. (NYSE:DCI) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard HP might be a better candidate to consider a long position.

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

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