Is Eaton Corp. (ETN) A Great Investment Pick?

ClearBridge Investments, an investment management firm, published its “Large Cap Growth Strategy” second quarter 2021 investor letter – a copy of which can be downloaded here. The ClearBridge Large Cap Growth Strategy underperformed its Russell 1000 Growth Index benchmark during the second quarter. On an absolute basis, the Strategy had gains across seven of the eight sectors in which it was invested (out of 11 sectors total). The leading contributors to performance were in the IT sector. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

In the Q2 2021 investor letter of ClearBridge Investments, the fund mentioned Eaton Corporation plc (NYSE: ETN), and discussed its stance on the firm. Eaton Corporation plc is a Dublin, Ireland-based power management company, that currently has a $61.2 billion market capitalization. ETN delivered a 27.90% return since the beginning of the year, extending its 12-month revenues to 64.23%. The stock closed at $153.40 per share on July 14, 2021.

Here is what ClearBridge Investments has to say about Eaton Corporation plc in its Q2 2021 investor letter:

“One secular consumer trend we are increasingly investing in is electric vehicles (EVs). In addition to owning Aptiv and NXP, leading component suppliers for EVs, we initiated a new position in the second quarter in Eaton, a global manufacturer of electrical, power management and hydraulics components and equipment. Eaton is a critical player in supporting the increasing electrification of the global economy with opportunities in areas ranging from utility generation and distribution infrastructure to EV charging stations, solar power systems and electricity supply for data centers. Eaton has transformed itself over the last decade from a heavy industrial company into a diverse set of businesses levered to the more attractive secular growth of electrification. We anticipate this focus will allow electrical products’ revenue to grow in the mid-to-high single digits and support margin improvement.”


Based on our calculations, Eaton Corporation plc (NYSE: ETN) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. Eaton Corporation plc was in 49 hedge fund portfolios at the end of the first quarter of 2021, compared to 41 funds in the fourth quarter of 2020. ETN delivered a 9.11% return in the past 3 months.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 S&P 500 ETFs by 115 percentage points since March 2017 (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.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage.

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