Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Pentair plc (NYSE:PNR).
Is PNR a good stock to buy? Hedge fund interest in Pentair plc (NYSE:PNR) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that PNR isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare PNR to other stocks including New Fortress Energy LLC (NASDAQ:NFE), Exelixis, Inc. (NASDAQ:EXEL), and Alteryx, Inc. (NYSE:AYX) to get a better sense of its popularity.
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are numerous methods shareholders employ to analyze stocks. Some of the most under-the-radar methods are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the top picks of the elite hedge fund managers can outperform the market by a solid amount (see the details here).
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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. 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 website. With all of this in mind we’re going to go over the new hedge fund action regarding Pentair plc (NYSE:PNR).
Do Hedge Funds Think PNR Is A Good Stock To Buy Now?
At third quarter’s end, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PNR over the last 21 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
The largest stake in Pentair plc (NYSE:PNR) was held by Impax Asset Management, which reported holding $383 million worth of stock at the end of September. It was followed by AQR Capital Management with a $43.8 million position. Other investors bullish on the company included Citadel Investment Group, Arrowstreet Capital, and Fairpointe Capital. In terms of the portfolio weights assigned to each position Impax Asset Management allocated the biggest weight to Pentair plc (NYSE:PNR), around 3.35% of its 13F portfolio. Fairpointe Capital is also relatively very bullish on the stock, earmarking 2.59 percent of its 13F equity portfolio to PNR.
Since Pentair plc (NYSE:PNR) has experienced declining sentiment from hedge fund managers, it’s easy to see that there exists a select few fund managers that decided to sell off their entire stakes heading into Q4. At the top of the heap, Dmitry Balyasny’s Balyasny Asset Management dropped the biggest stake of the “upper crust” of funds monitored by Insider Monkey, worth close to $35.6 million in stock. Steve Cohen’s fund, Point72 Asset Management, also dropped its stock, about $11.6 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Pentair plc (NYSE:PNR) but similarly valued. These stocks are New Fortress Energy LLC (NASDAQ:NFE), Exelixis, Inc. (NASDAQ:EXEL), Alteryx, Inc. (NYSE:AYX), F5 Networks, Inc. (NASDAQ:FFIV), JFrog Ltd. (NASDAQ:FROG), NRG Energy Inc (NYSE:NRG), and RH (NYSE:RH). This group of stocks’ market caps resemble PNR’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 30.3 hedge funds with bullish positions and the average amount invested in these stocks was $884 million. That figure was $594 million in PNR’s case. Alteryx, Inc. (NYSE:AYX) is the most popular stock in this table. On the other hand New Fortress Energy LLC (NASDAQ:NFE) is the least popular one with only 7 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 74.7. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. Hedge funds were also right about betting on PNR as the stock returned 14.6% since the end of Q3 (through 12/18) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.