Recent analysis reveals the 15 Small-Cap Manufacturing Stocks Hedge Funds Are Buying, with Pentair (NYSE:PNR) emerging as a key player in this segment. Let’s delve into how Pentair measures up against its peers in the manufacturing sector.
On February 26, Liz Ann Sonders, chief investment strategist at Charles Schwab, shared her insights on CNBC’s ‘Squawk on the Street’. She highlighted that amidst ongoing policy uncertainty, the manufacturing sector might face significant challenges. Sonders emphasized that current market sentiment is leaning more towards worries about economic growth rather than inflation. Her analysis identified weakening indicators, including consumer sentiment surveys, retail sales figures, and services PMI readings. Importantly, she noted the direct correlation between rising policy uncertainty and companies’ hesitance to invest in large capital goods, resulting in a pullback in capital expenditures and spending plans.
While recent PMI data shows a boost in manufacturing activity, the potential for growth is tempered by the looming policy-related uncertainty. Firms within the manufacturing space are increasingly cautious about future investments and expansions. Sonders further pointed out the exaggerated expectations around deficit reductions, where figures have so far fallen short of the ambitious $2 trillion target, with actual cuts amounting to less than $10 billion. Such dynamics, including tariffs, immigration, and regulatory changes, are likely to stifle growth estimates and exacerbate inflation concerns.
Our research leveraged financial media insights, the iShares U.S. Manufacturing ETF, Vanguard Industrials ETF, and hedge fund databases to curate the list of top small-cap manufacturing stocks. For our analysis, we defined small-cap stocks as companies with a market cap between $10 billion and $20 billion as of April 25. After an exhaustive review, we ranked the top 15 stocks based on the number of hedge fund holdings, using market cap as a tiebreaker when necessary.
Why focus on the stocks hedge funds are snapping up? It’s simple: our data shows that mimicking the top picks of leading hedge funds can yield substantial market-beating returns. Our quarterly newsletter has achieved an impressive 373.4% return since May 2014, outperforming its benchmark by a remarkable 218 percentage points. For more details, check our newsletter.
Market Capitalization as of April 25: $14.81 billion
Number of Hedge Fund Holders: 49
Pentair specializes in water solutions, with segments dedicated to fluid treatment, pump products, and both commercial and residential water systems. Additionally, its Pool segment has shown robust growth, with sales increasing by 7% year-over-year to reach $384 million in Q1 2025, benefiting from strategic pricing, sales volume, and the acquisition of G&F Manufacturing.
Looking ahead to Q2 2025, Pentair projects mid-single-digit growth in Pool sales. The company’s overarching strategy focuses on driving growth through value-based pricing and an 80/20 framework aimed at maximizing core sales with high-value customers. Transformation initiatives are also being pursued to enhance margins across all operational segments.
Impax Global Environmental Markets Fund remarked in its Q3 2024 investor letter:
“Pentair plc (NYSE:PNR) outperformed during the period. Following a weak Q2, driven by mixed reports from its value chain, July earnings came in better than anticipated, bolstered by a positive guidance outlook driven by margin improvements from self-help initiatives.”
Currently, Pentair ranks 3rd in our list of small-cap manufacturing stocks favored by hedge funds. However, while its growth prospects are appealing, our focus also extends to high-potential AI stocks that could offer quicker returns. One such AI stock has seen gains since the start of 2025, while many popular AI stocks have dropped around 25%. Dive into our report to discover the cheapest AI stock that trades under 5 times its earnings.
READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.
Disclosure: None. This article originally appeared on Insider Monkey.