ITT Inc. (ITT): Hedge Funds Are Coming Back

·6 min read

While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March, 2020 and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding ITT Inc. (NYSE:ITT).

Is ITT Inc. (NYSE:ITT) ready to rally soon? The smart money was taking a bullish view. The number of long hedge fund bets improved by 2 recently. ITT Inc. (NYSE:ITT) was in 20 hedge funds' portfolios at the end of June. The all time high for this statistic is 30. Our calculations also showed that ITT isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 18 hedge funds in our database with ITT positions at the end of the first quarter.

According to most investors, hedge funds are perceived as worthless, outdated investment tools of yesteryear. While there are more than 8000 funds in operation today, Our researchers look at the masters of this group, around 850 funds. It is estimated that this group of investors orchestrate the lion's share of the smart money's total capital, and by observing their matchless stock picks, Insider Monkey has deciphered a number of investment strategies that have historically surpassed Mr. Market. Insider Monkey's flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Also, our monthly newsletter's portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

Ken Griffin of Citadel Investment Group

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, plant based food market is expected to explode 100-fold by 2050, so we are checking out this under-the-radar stock. We go through lists like the 10 best growth stocks to buy 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. With all of this in mind let's take a look at the fresh hedge fund action regarding ITT Inc. (NYSE:ITT).

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

At Q2's end, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from one quarter earlier. By comparison, 25 hedge funds held shares or bullish call options in ITT a year ago. With the smart money's capital changing hands, there exists a select group of key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

The largest stake in ITT Inc. (NYSE:ITT) was held by Paradice Investment Management, which reported holding $128.2 million worth of stock at the end of June. It was followed by Citadel Investment Group with a $34.5 million position. Other investors bullish on the company included GAMCO Investors, Renaissance Technologies, and AQR Capital Management. In terms of the portfolio weights assigned to each position Paradice Investment Management allocated the biggest weight to ITT Inc. (NYSE:ITT), around 5.95% of its 13F portfolio. GAMCO Investors is also relatively very bullish on the stock, earmarking 0.26 percent of its 13F equity portfolio to ITT.

With a general bullishness amongst the heavyweights, key hedge funds were breaking ground themselves. Renaissance Technologies, established the most outsized position in ITT Inc. (NYSE:ITT). Renaissance Technologies had $14.9 million invested in the company at the end of the quarter. Michael Gelband's ExodusPoint Capital also initiated a $1.3 million position during the quarter. The other funds with brand new ITT positions are Mika Toikka's AlphaCrest Capital Management, Karim Abbadi and Edward McBride's Centiva Capital, and Donald Sussman's Paloma Partners.

Let's also examine hedge fund activity in other stocks similar to ITT Inc. (NYSE:ITT). These stocks are MasTec, Inc. (NYSE:MTZ), Lincoln Electric Holdings, Inc. (NASDAQ:LECO), New Fortress Energy Inc. (NASDAQ:NFE), Woodward Inc (NASDAQ:WWD), Globus Medical Inc (NYSE:GMED), Encompass Health Corporation (NYSE:EHC), and Brunswick Corporation (NYSE:BC). All of these stocks' market caps resemble ITT's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MTZ,39,402899,3 LECO,20,294072,1 NFE,9,14364,-3 WWD,22,682513,-5 GMED,35,309393,7 EHC,42,864585,6 BC,38,1095771,-4 Average,29.3,523371,0.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.3 hedge funds with bullish positions and the average amount invested in these stocks was $523 million. That figure was $272 million in ITT's case. Encompass Health Corporation (NYSE:EHC) is the most popular stock in this table. On the other hand New Fortress Energy Inc. (NASDAQ:NFE) is the least popular one with only 9 bullish hedge fund positions. ITT Inc. (NYSE:ITT) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ITT is 43.7. 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. 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 October 22nd and surpassed the market again by 1.6 percentage points. Unfortunately ITT wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); ITT investors were disappointed as the stock returned 3.2% since the end of June (through 10/22) 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.

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