Is Pentair plc (PNR) Going to Burn These Hedge Funds?

We at Insider Monkey have gone over 866 13F filings that hedge funds and prominent investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st. In this article, we look at what those funds think of Pentair plc (NYSE:PNR) based on that data.

Is Pentair plc (NYSE:PNR) the right pick for your portfolio? The smart money was in an optimistic mood. The number of bullish hedge fund bets moved up by 1 recently. Pentair plc (NYSE:PNR) was in 30 hedge funds’ portfolios at the end of March. The all time high for this statistic is 34. Our calculations also showed that PNR isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Nick Thakore of Diametric Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV 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. Now let’s analyze the latest hedge fund action regarding Pentair plc (NYSE:PNR).

Do Hedge Funds Think PNR Is A Good Stock To Buy Now?

At the end of March, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from the fourth quarter of 2020. The graph below displays the number of hedge funds with bullish position in PNR over the last 23 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

Is PNR A Good Stock To Buy?

More specifically, Impax Asset Management was the largest shareholder of Pentair plc (NYSE:PNR), with a stake worth $604.5 million reported as of the end of March. Trailing Impax Asset Management was Marshall Wace LLP, which amassed a stake valued at $60.7 million. AQR Capital Management, Prospector Partners, and Adage Capital 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 Impax Asset Management allocated the biggest weight to Pentair plc (NYSE:PNR), around 3.09% of its 13F portfolio. Diametric Capital is also relatively very bullish on the stock, dishing out 1.66 percent of its 13F equity portfolio to PNR.

As one would reasonably expect, some big names were leading the bulls’ herd. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, initiated the most outsized position in Pentair plc (NYSE:PNR). Marshall Wace LLP had $60.7 million invested in the company at the end of the quarter. Richard Gerson and Navroz D. Udwadia’s Falcon Edge Capital also made a $8.7 million investment in the stock during the quarter. The other funds with brand new PNR positions are Alexander Mitchell’s Scopus Asset Management, Nick Thakore’s Diametric Capital, and Brandon Haley’s Holocene Advisors.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Pentair plc (NYSE:PNR) but similarly valued. We will take a look at Molson Coors Beverage Company (NYSE:TAP), MKS Instruments, Inc. (NASDAQ:MKSI), Dun & Bradstreet Corporation (NYSE:DNB), Dr. Reddy’s Laboratories Limited (NYSE:RDY), Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH), Hubbell Incorporated (NYSE:HUBB), and The Western Union Company (NYSE:WU). All of these stocks’ market caps are closest to PNR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TAP 34 341099 -5
MKSI 22 512507 -5
DNB 29 835475 -3
RDY 12 180324 0
NCLH 34 576202 -6
HUBB 15 421137 -7
WU 28 410366 -1
Average 24.9 468159 -3.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.9 hedge funds with bullish positions and the average amount invested in these stocks was $468 million. That figure was $775 million in PNR’s case. Molson Coors Beverage Company (NYSE:TAP) is the most popular stock in this table. On the other hand Dr. Reddy’s Laboratories Limited (NYSE:RDY) is the least popular one with only 12 bullish hedge fund positions. Pentair plc (NYSE:PNR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PNR is 73.4. 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 positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 22.8% in 2021 through July 2nd and beat the market again by 6 percentage points. Unfortunately PNR wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on PNR were disappointed as the stock returned 9.5% since the end of March (through 7/2) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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