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Illinois Tool Works Inc. (ITW): Hedge Fund Interest Inching Up

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Illinois Tool Works Inc. (NYSE:ITW) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

Illinois Tool Works Inc. (NYSE:ITW) has experienced an increase in hedge fund sentiment in recent months. Illinois Tool Works Inc. (NYSE:ITW) was in 35 hedge funds’ portfolios at the end of June. The all time high for this statistics is 38. Our calculations also showed that ITW 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.

To the average investor there are numerous indicators investors put to use to size up publicly traded companies. Some of the most useful indicators are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the best picks of the best investment managers can beat the market by a significant amount (see the details here).

Steven Cohen

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, 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. Legal marijuana is one of the fastest growing industries right now, so we are also checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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 we’re going to check out the key hedge fund action regarding Illinois Tool Works Inc. (NYSE:ITW).

What have hedge funds been doing with Illinois Tool Works Inc. (NYSE:ITW)?

At the end of June, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 3% from the first quarter of 2020. By comparison, 28 hedge funds held shares or bullish call options in ITW a year ago. With hedge funds’ capital changing hands, there exists a few notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

Is ITW A Good Stock To Buy?

More specifically, AQR Capital Management was the largest shareholder of Illinois Tool Works Inc. (NYSE:ITW), with a stake worth $94.1 million reported as of the end of September. Trailing AQR Capital Management was Citadel Investment Group, which amassed a stake valued at $81.2 million. Balyasny Asset Management, Arrowstreet Capital, and Markel Gayner Asset Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Jade Capital Advisors allocated the biggest weight to Illinois Tool Works Inc. (NYSE:ITW), around 5.58% of its 13F portfolio. Arjuna Capital is also relatively very bullish on the stock, setting aside 2 percent of its 13F equity portfolio to ITW.

As industrywide interest jumped, key money managers have jumped into Illinois Tool Works Inc. (NYSE:ITW) headfirst. Balyasny Asset Management, managed by Dmitry Balyasny, established the biggest position in Illinois Tool Works Inc. (NYSE:ITW). Balyasny Asset Management had $61.2 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also made a $42.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Israel Englander’s Millennium Management, Robert Vincent McHugh’s Jade Capital Advisors, and Donald Sussman’s Paloma Partners.

Let’s check out hedge fund activity in other stocks similar to Illinois Tool Works Inc. (NYSE:ITW). We will take a look at America Movil SAB de CV (NYSE:AMX), The Southern Company (NYSE:SO), Illumina, Inc. (NASDAQ:ILMN), Marsh & McLennan Companies, Inc. (NYSE:MMC), Uber Technologies, Inc. (NYSE:UBER), Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR), and CSX Corporation (NYSE:CSX). This group of stocks’ market values match ITW’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AMX 11 97994 0
SO 38 360503 5
ILMN 41 1193190 7
MMC 38 846796 1
UBER 94 5388672 -3
PBR 29 1409778 -3
CSX 46 2290942 -11
Average 42.4 1655411 -0.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 42.4 hedge funds with bullish positions and the average amount invested in these stocks was $1655 million. That figure was $565 million in ITW’s case. Uber Technologies, Inc. (NYSE:UBER) is the most popular stock in this table. On the other hand America Movil SAB de CV (NYSE:AMX) is the least popular one with only 11 bullish hedge fund positions. Illinois Tool Works Inc. (NYSE:ITW) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ITW is 48.1. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 surpassed the market by 23.2 percentage points. Unfortunately ITW wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); ITW investors were disappointed as the stock returned 13% since Q2 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.