Is Rockwell Automation Inc. (ROK) A Good Stock To Buy?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the fourth quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 6 years and analyze what the smart money thinks of Rockwell Automation Inc. (NYSE:ROK) based on that data.

Is ROK a good stock to buy? Rockwell Automation Inc. (NYSE:ROK) has seen a decrease in enthusiasm from smart money in recent months. Rockwell Automation Inc. (NYSE:ROK) was in 26 hedge funds’ portfolios at the end of March. The all time high for this statistic is 50. Our calculations also showed that ROK 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.

Gavin Saitowitz of Prelude Capital

Gavin Saitowitz of Prelude Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, economists warn of inflation flare up. So, we are checking out this backdoor gold play that has hit peak gains of 718% in a little over a year. 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. Keeping this in mind we’re going to view the new hedge fund action surrounding Rockwell Automation Inc. (NYSE:ROK).

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

At the end of the first quarter, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of -26% from the fourth quarter of 2020. Below, you can check out the change in hedge fund sentiment towards ROK over the last 23 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

The largest stake in Rockwell Automation Inc. (NYSE:ROK) was held by Impax Asset Management, which reported holding $167.2 million worth of stock at the end of December. It was followed by AQR Capital Management with a $51.4 million position. Other investors bullish on the company included PEAK6 Capital Management, GAMCO Investors, and Markel Gayner Asset Management. In terms of the portfolio weights assigned to each position Heathbridge Capital Management allocated the biggest weight to Rockwell Automation Inc. (NYSE:ROK), around 4.03% of its 13F portfolio. Jade Capital Advisors is also relatively very bullish on the stock, designating 3.7 percent of its 13F equity portfolio to ROK.

Due to the fact that Rockwell Automation Inc. (NYSE:ROK) has witnessed falling interest from the smart money, it’s easy to see that there exists a select few hedge funds that elected to cut their full holdings last quarter. Intriguingly, Seth Rosen’s Nitorum Capital dumped the largest position of the “upper crust” of funds tracked by Insider Monkey, worth about $54.8 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund dropped about $38.5 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 9 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to Rockwell Automation Inc. (NYSE:ROK). These stocks are Delta Air Lines, Inc. (NYSE:DAL), Nutrien Ltd. (NYSE:NTR), Xilinx, Inc. (NASDAQ:XLNX), Interactive Brokers Group, Inc. (NASDAQ:IBKR), Public Service Enterprise Group Incorporated (NYSE:PEG), Chunghwa Telecom Co., Ltd (NYSE:CHT), and SBA Communications Corporation (NASDAQ:SBAC). This group of stocks’ market caps resemble ROK’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DAL 50 1099712 -8
NTR 33 895159 8
XLNX 57 3581332 -9
IBKR 31 1456604 3
PEG 24 287434 -4
CHT 3 153173 -2
SBAC 38 2090468 -5
Average 33.7 1366269 -2.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.7 hedge funds with bullish positions and the average amount invested in these stocks was $1366 million. That figure was $442 million in ROK’s case. Xilinx, Inc. (NASDAQ:XLNX) is the most popular stock in this table. On the other hand Chunghwa Telecom Co., Ltd (NYSE:CHT) is the least popular one with only 3 bullish hedge fund positions. Rockwell Automation Inc. (NYSE:ROK) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ROK is 32.9. 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 negative signal and 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 24% in 2021 through July 9th and surpassed the market again by 6.7 percentage points. Unfortunately ROK wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); ROK investors were disappointed as the stock returned 10.1% since the end of March (through 7/9) 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 most of these stocks already outperformed the market in 2021.

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