Is Rockwell Automation (ROK) Worth Another Look?

Hedge funds run by legendary names like Nelson Peltz and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant out-performance. These stocks have been on a tear since the end of June, outperforming large-cap index funds by more than 10 percentage points. That’s why we pay special attention to hedge fund activity in these stocks.

Is Rockwell Automation (NYSE:ROK) a buy right now? Investors who are in the know are taking a bearish view. The number of bullish hedge fund positions retreated by 3 recently. At the end of this article we will also compare ROK to other stocks including Essex Property Trust Inc (NYSE:ESS), Ameriprise Financial, Inc. (NYSE:AMP), and FirstEnergy Corp. (NYSE:FE) to get a better sense of its popularity.

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Now, let’s take a peek at the recent action regarding Rockwell Automation (NYSE:ROK).

What have hedge funds been doing with Rockwell Automation (NYSE:ROK)?

At the end of the third quarter, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a 10% drop from the second quarter of 2016. Hedge fund ownership of the stock has generally trended down over the past year, save for a mild uptick in Q1. With hedge funds’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, David Blood and Al Gore’s Generation Investment Management has the largest position in Rockwell Automation (NYSE:ROK), worth close to $120.7 million, comprising 1.3% of its total 13F portfolio. Sitting at the No. 2 spot is AQR Capital Management, managed by Cliff Asness, which holds a $49.5 million position. Remaining members of the smart money that hold long positions encompass Mario Gabelli’s GAMCO Investors, Paul Marshall and Ian Wace’s Marshall Wace LLP and Joel Greenblatt’s Gotham Asset Management.

Since Rockwell Automation (NYSE:ROK) has experienced declining sentiment from the smart money, we can see that there was a specific group of fund managers who sold off their full holdings by the end of the third quarter. Intriguingly, James Dinan’s York Capital Management cut the biggest stake of the “upper crust” of funds monitored by Insider Monkey, comprising about $56.4 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also dumped its stock, about $15.5 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 3 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Rockwell Automation (NYSE:ROK) but similarly valued. These stocks are Essex Property Trust Inc (NYSE:ESS), Ameriprise Financial, Inc. (NYSE:AMP), FirstEnergy Corp. (NYSE:FE), and NetEase, Inc (ADR) (NASDAQ:NTES). All of these stocks’ market caps are closest to ROK’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ESS 19 359717 -5
AMP 29 284431 -3
FE 31 1309307 4
NTES 39 2975270 12

As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $1.23 billion. That figure was $432 million in ROK’s case. NetEase, Inc (ADR) (NASDAQ:NTES) is the most popular stock in this table. On the other hand Essex Property Trust Inc (NYSE:ESS) is the least popular one with only 19 bullish hedge fund positions. Rockwell Automation (NYSE:ROK) 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 NTES might be a better candidate to consider a long position.

Disclosure: None