“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Titan Machinery Inc. (NASDAQ:TITN).
Is Titan Machinery Inc. (NASDAQ:TITN) worth your attention right now? Investors who are in the know are in a bearish mood. The number of long hedge fund positions went down by 4 recently. Our calculations also showed that TITN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
John Overdeck of Two Sigma Advisors
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a look at the fresh hedge fund action encompassing Titan Machinery Inc. (NASDAQ:TITN).
How have hedgies been trading Titan Machinery Inc. (NASDAQ:TITN)?
At the end of the third quarter, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -22% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards TITN over the last 17 quarters. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Titan Machinery Inc. (NASDAQ:TITN), with a stake worth $5.1 million reported as of the end of September. Trailing Renaissance Technologies was Rutabaga Capital Management, which amassed a stake valued at $5 million. Two Sigma Advisors, Millennium Management, and Harvest Capital Strategies 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 Harvest Capital Strategies allocated the biggest weight to Titan Machinery Inc. (NASDAQ:TITN), around 1.98% of its 13F portfolio. Rutabaga Capital Management is also relatively very bullish on the stock, earmarking 1.77 percent of its 13F equity portfolio to TITN.
Judging by the fact that Titan Machinery Inc. (NASDAQ:TITN) has faced bearish sentiment from the smart money, it’s easy to see that there exists a select few money managers that decided to sell off their entire stakes by the end of the third quarter. At the top of the heap, Richard Driehaus’s Driehaus Capital said goodbye to the biggest stake of the “upper crust” of funds tracked by Insider Monkey, totaling about $6 million in call options, and Steve Cohen’s Point72 Asset Management was right behind this move, as the fund said goodbye to about $5.1 million worth. These transactions are important to note, as total hedge fund interest was cut by 4 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 Titan Machinery Inc. (NASDAQ:TITN) but similarly valued. These stocks are American Outdoor Brands Corporation (NASDAQ:AOBC), Fluidigm Corporation (NASDAQ:FLDM), Summit Financial Group, Inc. (NASDAQ:SMMF), and CASI Pharmaceuticals Inc (NASDAQ:CASI). This group of stocks’ market caps resemble TITN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AOBC | 17 | 51290 | 1 |
| FLDM | 20 | 89529 | 3 |
| SMMF | 2 | 7717 | 0 |
| CASI | 2 | 282 | 1 |
| Average | 10.25 | 37205 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $37 million. That figure was $20 million in TITN’s case. Fluidigm Corporation (NASDAQ:FLDM) is the most popular stock in this table. On the other hand Summit Financial Group, Inc. (NASDAQ:SMMF) is the least popular one with only 2 bullish hedge fund positions. Titan Machinery Inc. (NASDAQ:TITN) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately TITN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on TITN were disappointed as the stock returned -6.1% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
