Hedge Funds Are Cashing Out Of Sensata Technologies Holding plc (ST)

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Sensata Technologies Holding plc (NYSE:ST)? The smart money sentiment can provide an answer to this question.

Is Sensata Technologies Holding plc (NYSE:ST) the right pick for your portfolio? The best stock pickers were becoming less confident. The number of long hedge fund positions dropped by 4 recently. Sensata Technologies Holding plc (NYSE:ST) was in 32 hedge funds’ portfolios at the end of June. The all time high for this statistic is 37. Our calculations also showed that ST isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 79 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

William Gray of Orbis Investment Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV 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 go over the key hedge fund action regarding Sensata Technologies Holding plc (NYSE:ST).

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

Heading into the third quarter of 2021, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards ST over the last 24 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Generation Investment Management held the most valuable stake in Sensata Technologies Holding plc (NYSE:ST), which was worth $636.5 million at the end of the second quarter. On the second spot was Select Equity Group which amassed $444.3 million worth of shares. Orbis Investment Management, Diamond Hill Capital, and Arrowstreet Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Lodge Hill Capital allocated the biggest weight to Sensata Technologies Holding plc (NYSE:ST), around 3.62% of its 13F portfolio. Force Hill Capital Management is also relatively very bullish on the stock, setting aside 3.43 percent of its 13F equity portfolio to ST.

Because Sensata Technologies Holding plc (NYSE:ST) has faced falling interest from hedge fund managers, it’s easy to see that there lies a certain “tier” of money managers that slashed their entire stakes heading into Q3. Interestingly, Joe DiMenna’s ZWEIG DIMENNA PARTNERS dumped the largest stake of the “upper crust” of funds followed by Insider Monkey, totaling an estimated $3.4 million in stock. Richard SchimeláandáLawrence Sapanski’s fund, Cinctive Capital Management, also dropped its stock, about $3.2 million worth. These transactions are interesting, as total hedge fund interest was cut by 4 funds heading into Q3.

Let’s check out hedge fund activity in other stocks similar to Sensata Technologies Holding plc (NYSE:ST). These stocks are Federal Realty Investment Trust (NYSE:FRT), Algonquin Power & Utilities Corp. (NYSE:AQN), BridgeBio Pharma, Inc. (NASDAQ:BBIO), CAE, Inc. (NYSE:CAE), Smartsheet Inc. (NYSE:SMAR), Kimco Realty Corp (NYSE:KIM), and Globant SA (NYSE:GLOB). All of these stocks’ market caps are closest to ST’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.1 hedge funds with bullish positions and the average amount invested in these stocks was $777 million. That figure was $1822 million in ST’s case. Smartsheet Inc. (NYSE:SMAR) is the most popular stock in this table. On the other hand CAE, Inc. (NYSE:CAE) is the least popular one with only 10 bullish hedge fund positions. Sensata Technologies Holding plc (NYSE:ST) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ST is 55.2. 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 positive signal but 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 24.9% in 2021 through October 15th and beat the market again by 4.5 percentage points. Unfortunately ST wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on ST were disappointed as the stock returned 0.7% since the end of June (through 10/15) 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 many of these stocks already outperformed the market since 2019.

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