How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Roper Technologies Inc. (NYSE:ROP) and determine whether hedge funds had an edge regarding this stock.
Is Roper Technologies Inc. (NYSE:ROP) a great investment today? The smart money was becoming hopeful. The number of bullish hedge fund positions inched up by 7 recently. Roper Technologies Inc. (NYSE:ROP) was in 45 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 41. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ROP isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
According to most market participants, hedge funds are assumed to be unimportant, outdated investment vehicles of the past. While there are over 8000 funds with their doors open at present, Our researchers look at the moguls of this club, around 850 funds. Most estimates calculate that this group of people have their hands on most of the hedge fund industry’s total capital, and by keeping an eye on their unrivaled equity investments, Insider Monkey has unearthed many investment strategies that have historically beaten the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
Israel Englander of Millennium Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now let’s analyze the new hedge fund action encompassing Roper Technologies Inc. (NYSE:ROP).
How are hedge funds trading Roper Technologies Inc. (NYSE:ROP)?
At the end of the second quarter, a total of 45 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in ROP over the last 20 quarters. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Charles Akre’s Akre Capital Management has the biggest position in Roper Technologies Inc. (NYSE:ROP), worth close to $673.5 million, corresponding to 5.1% of its total 13F portfolio. Coming in second is Millennium Management, led by Israel Englander, holding a $55.4 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism contain Peter Simmie’s Bristol Gate Capital Partners, Greg Poole’s Echo Street Capital Management and Anand Parekh’s Alyeska Investment Group. In terms of the portfolio weights assigned to each position Lansing Management allocated the biggest weight to Roper Technologies Inc. (NYSE:ROP), around 16.09% of its 13F portfolio. Akre Capital Management is also relatively very bullish on the stock, earmarking 5.07 percent of its 13F equity portfolio to ROP.
With a general bullishness amongst the heavyweights, some big names have been driving this bullishness. Renaissance Technologies, established the biggest position in Roper Technologies Inc. (NYSE:ROP). Renaissance Technologies had $30.7 million invested in the company at the end of the quarter. Ric Dillon’s Diamond Hill Capital also initiated a $30.3 million position during the quarter. The other funds with brand new ROP positions are Thomas Rigo’s Bishop Rock Capital, Phill Gross and Robert Atchinson’s Adage Capital Management, and Qing Li’s Sciencast Management.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Roper Technologies Inc. (NYSE:ROP) but similarly valued. These stocks are TAL Education Group (NYSE:TAL), TC Energy Corporation (NYSE:TRP), Banco Santander, S.A. (NYSE:SAN), Keurig Dr Pepper Inc. (NASDAQ:KDP), Enterprise Products Partners L.P. (NYSE:EPD), Prudential Public Limited Company (NYSE:PUK), and American Electric Power Company, Inc. (NYSE:AEP). This group of stocks’ market valuations are similar to ROP’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TAL | 40 | 2367131 | 2 |
| TRP | 21 | 255710 | -3 |
| SAN | 16 | 351399 | -2 |
| KDP | 29 | 725935 | -1 |
| EPD | 30 | 222209 | 4 |
| PUK | 5 | 9403 | -1 |
| AEP | 34 | 753751 | -4 |
| Average | 25 | 669363 | -0.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $669 million. That figure was $1102 million in ROP’s case. TAL Education Group (NYSE:TAL) is the most popular stock in this table. On the other hand Prudential Public Limited Company (NYSE:PUK) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Roper Technologies Inc. (NYSE:ROP) is more popular among hedge funds. Our overall hedge fund sentiment score for ROP is 90. 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Unfortunately ROP wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ROP were disappointed as the stock returned 10.1% since the end of the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
