Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. At Insider Monkey, we pore over the filings of nearly 835 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not Taubman Centers, Inc. (NYSE:TCO) makes for a good investment right now.
Is Taubman Centers, Inc. (NYSE:TCO) a splendid stock to buy now? The best stock pickers are in an optimistic mood. The number of long hedge fund positions improved by 2 lately. Our calculations also showed that TCO isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). TCO was in 26 hedge funds’ portfolios at the end of December. There were 24 hedge funds in our database with TCO holdings at the end of the previous quarter.
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 41 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.
Ken Griffin of Citadel Investment Group
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s check out the latest hedge fund action encompassing Taubman Centers, Inc. (NYSE:TCO).
How have hedgies been trading Taubman Centers, Inc. (NYSE:TCO)?
Heading into the first quarter of 2020, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards TCO over the last 18 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
The largest stake in Taubman Centers, Inc. (NYSE:TCO) was held by Land & Buildings Investment Management, which reported holding $46.5 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $20.1 million position. Other investors bullish on the company included EMS Capital, Forward Management, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Land & Buildings Investment Management allocated the biggest weight to Taubman Centers, Inc. (NYSE:TCO), around 8.56% of its 13F portfolio. Berylson Capital Partners is also relatively very bullish on the stock, setting aside 4.11 percent of its 13F equity portfolio to TCO.
Now, key money managers have been driving this bullishness. EMS Capital, managed by Edmond M. Safra, created the largest position in Taubman Centers, Inc. (NYSE:TCO). EMS Capital had $13.1 million invested in the company at the end of the quarter. J. Alan Reid, Jr.’s Forward Management also made a $8.4 million investment in the stock during the quarter. The other funds with brand new TCO positions are James Thomas Berylson’s Berylson Capital Partners, Renaissance Technologies, and Matthew Crandall Gilman’s Hill Winds Capital.
Let’s now review hedge fund activity in other stocks similar to Taubman Centers, Inc. (NYSE:TCO). These stocks are Hostess Brands, Inc. (NASDAQ:TWNK), Intra-Cellular Therapies Inc (NASDAQ:ITCI), Mueller Water Products, Inc. (NYSE:MWA), and Pacira Pharmaceuticals Inc (NASDAQ:PCRX). This group of stocks’ market caps match TCO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TWNK | 37 | 288944 | 4 |
| ITCI | 12 | 135601 | 1 |
| MWA | 20 | 276558 | -3 |
| PCRX | 28 | 408153 | -3 |
| Average | 24.25 | 277314 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.25 hedge funds with bullish positions and the average amount invested in these stocks was $277 million. That figure was $128 million in TCO’s case. Hostess Brands, Inc. (NASDAQ:TWNK) is the most popular stock in this table. On the other hand Intra-Cellular Therapies Inc (NASDAQ:ITCI) is the least popular one with only 12 bullish hedge fund positions. Taubman Centers, Inc. (NYSE:TCO) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but still beat the market by 4.2 percentage points. Hedge funds were also right about betting on TCO as the stock returned 44.8% in 2020 (through April 6th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
