Is Eaton Corp. (ETN) A Smart Long-Term Buy?

Sound Shore Management, an investment management firm, published its ‘SSHFX and SSHVX’ fourth quarter 2020 investor letter – a copy of which can be downloaded here. A return of 21.03% was recorded by the Sound Shore Fund Investor (SSHFX) fund, and 21.08% by the Institutional (SSHVX) class fund in the fourth quarter of 2020, outperforming its Russell 1000 Value Index and S&P 500 benchmark that delivered a 16.25% and 12.15% returns respectively in the same period. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

Sound Shore Management, in their Q4 2020 investor letter, mentioned Eaton Corporation plc (NYSE: ETN) and emphasized their views on the company. Eaton Corporation plc is a New Jersey-based global power management company that currently has a $55.8 billion market capitalization. Since the beginning of the year, ETN delivered a 16.48% return, extending its 12-month gains to 84.33%. As of March 10, 2021, the stock closed at $139.25 per share.

Here is what Sound Shore Management has to say about Eaton Corporation plc in their Q4 2020 investor letter:

“Similarly, our investment in Eaton is another great Sound Shore case study. Eaton is an electrical equipment maker that we were able to purchase in 2018 when it was trading below normal at 13 times earnings. The stock gained 31% in 2020 and outperformed its industrial peers. Over the last ten years, Eaton has methodically repositioned its business mix to a high value-add, electrical parts and aerospace business that now represents greater than 75% of operating earnings. This transformation has positioned the company well for the surge in demand for electric energy efficiency and environmentally friendly solutions. In addition, Eaton’s experienced management is focused on capital efficiency and has executed on improving organic revenue growth and improved profitability. The company is generating substantial free cash flow and has returned 6% of capital to shareholders through dividends and buybacks for the year. Even after the stock’s recent performance, it is still reasonably valued on free cash flow and remains a holding.”

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Our calculations show that Eaton Corporation plc (NYSE: ETN) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the fourth quarter of 2020, Eaton Corporation plc was in 41 hedge fund portfolios, compared to 35 funds in the third quarter. ETN delivered a decent 21.53% return in the past 3 months.

The top 10 stocks among hedge funds returned 231.2% between 2015 and 2020, and outperformed the S&P 500 Index ETFs by more than 126 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Here you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

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