Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards The Timken Company (NYSE:TKR) to find out whether there were any major changes in hedge funds’ views.
The Timken Company (NYSE:TKR) was in 22 hedge funds’ portfolios at the end of June. The all time high for this statistic is 40. TKR shareholders have witnessed a decrease in hedge fund interest lately. There were 23 hedge funds in our database with TKR holdings at the end of March. Our calculations also showed that TKR isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 79 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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. With all of this in mind let’s take a look at the latest hedge fund action regarding The Timken Company (NYSE:TKR).
Do Hedge Funds Think TKR Is A Good Stock To Buy Now?
At Q2’s end, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from the previous quarter. The graph below displays the number of hedge funds with bullish position in TKR over the last 24 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
More specifically, AQR Capital Management was the largest shareholder of The Timken Company (NYSE:TKR), with a stake worth $45.3 million reported as of the end of June. Trailing AQR Capital Management was Royce & Associates, which amassed a stake valued at $24.4 million. Adage Capital Management, Millennium Management, and Sabrepoint 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 Sabrepoint Capital allocated the biggest weight to The Timken Company (NYSE:TKR), around 3.68% of its 13F portfolio. McKinley Capital Management is also relatively very bullish on the stock, setting aside 0.63 percent of its 13F equity portfolio to TKR.
Due to the fact that The Timken Company (NYSE:TKR) has faced declining sentiment from the smart money, it’s safe to say that there was a specific group of hedge funds who sold off their entire stakes last quarter. At the top of the heap, Paul Marshall and Ian Wace’s Marshall Wace LLP sold off the largest position of the “upper crust” of funds monitored by Insider Monkey, totaling an estimated $28 million in stock, and Andrew Sandler’s Sandler Capital Management was right behind this move, as the fund dumped about $4.7 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 1 funds last quarter.
Let’s also examine hedge fund activity in other stocks similar to The Timken Company (NYSE:TKR). We will take a look at Perrigo Co Plc (NASDAQ:PRGO), Varonis Systems Inc (NASDAQ:VRNS), Penske Automotive Group, Inc. (NYSE:PAG), Tandem Diabetes Care Inc (NASDAQ:TNDM), Landstar System, Inc. (NASDAQ:LSTR), Ingredion Incorporated (NYSE:INGR), and CDK Global Inc (NASDAQ:CDK). This group of stocks’ market caps are similar to TKR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PRGO | 28 | 457403 | -5 |
| VRNS | 24 | 336746 | -8 |
| PAG | 19 | 188147 | 7 |
| TNDM | 32 | 352984 | 7 |
| LSTR | 16 | 157149 | 1 |
| INGR | 21 | 383586 | -4 |
| CDK | 24 | 225691 | 6 |
| Average | 23.4 | 300244 | 0.6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.4 hedge funds with bullish positions and the average amount invested in these stocks was $300 million. That figure was $155 million in TKR’s case. Tandem Diabetes Care Inc (NASDAQ:TNDM) is the most popular stock in this table. On the other hand Landstar System, Inc. (NASDAQ:LSTR) is the least popular one with only 16 bullish hedge fund positions. The Timken Company (NYSE:TKR) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for TKR is 39.3. 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 TKR wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); TKR investors were disappointed as the stock returned -10.5% 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.
Follow Timken Co (NYSE:TKR)
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Disclosure: None. This article was originally published at Insider Monkey.
