Is Parker-Hannifin Corporation (PH) Going to Burn These Hedge Funds?

Reputable billionaire investors such as Nelson Peltz and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.

Parker-Hannifin Corporation (NYSE:PH) shareholders have witnessed an increase in activity from the world’s largest hedge funds in recent months. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article, we will examine companies such as Mohawk Industries, Inc. (NYSE:MHK), Invesco Ltd. (NYSE:IVZ), and SBA Communications Corporation (NASDAQ:SBAC) to gather more data points.

In the 21st century investor’s toolkit, there are dozens of gauges investors can use to analyze stocks. Two of the most innovative gauges are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the top picks of the best money managers can beat the broader indices by a healthy margin (see the details here).

Now, we’re going to view the latest action surrounding Parker-Hannifin Corporation (NYSE:PH).

What have hedge funds been doing with Parker-Hannifin Corporation (NYSE:PH)?

At the end of September, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, an increase of 25% from the second quarter. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Pzena Investment Management, managed by Richard S. Pzena, holds the number one position in Parker-Hannifin Corporation (NYSE:PH). Pzena Investment Management has a $342 million position in the stock, comprising 2.2% of its 13F portfolio. Coming in second is Winton Capital Management, managed by David Harding, which holds a $64 million position; the fund has 0.5% of its 13F portfolio invested in the stock. Other members of the smart money that hold long positions consist of Joel Greenblatt’s Gotham Asset Management, Renaissance Technologies, and Cliff Asness’ AQR Capital Management.

As industrywide interest jumped, specific money managers were leading the bulls’ herd. Millennium Management, managed by Israel Englander, assembled the most valuable position in Parker-Hannifin Corporation (NYSE:PH). Millennium Management had $8.6 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $4.9 million position during the quarter. The other funds with brand new PH positions are Dmitry Balyasny’s Balyasny Asset Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and John Overdeck and David Siegel’s Two Sigma Advisors.

Let’s now take a look at hedge fund activity in other stocks similar to Parker-Hannifin Corporation (NYSE:PH). We will take a look at Mohawk Industries, Inc. (NYSE:MHK), Invesco Ltd. (NYSE:IVZ), SBA Communications Corporation (NASDAQ:SBAC), and Vale SA (ADR) (NYSE:VALE). This group of stocks’ market valuations matches Parker-Hannifin Corporation (NYSE:PH)’s market valuation.

As you can see, these stocks had an average of 44 hedge funds with bullish positions and the average amount invested in these stocks was $1.40 billion. That figure was $848 million in Parker-Hannifin Corporation (NYSE:PH)’s case. Mohawk Industries, Inc. (NYSE:MHK) is the most popular stock in this table. On the other hand, Vale SA (ADR) (NYSE:VALE) is the least popular one with only 24 bullish hedge fund positions. Parker-Hannifin Corporation (NYSE:PH) 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, Mohawk Industries, Inc. (NYSE:MHK) might be a better candidate to consider a long position.