Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before last year’s Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Tootsie Roll Industries, Inc. (NYSE:TR) changed recently.
Tootsie Roll Industries, Inc. (NYSE:TR) investors should pay attention to an increase in support from the world’s most elite money managers of late. Our calculations also showed that TR 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.
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 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.
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. Let’s view the new hedge fund action regarding Tootsie Roll Industries, Inc. (NYSE:TR).
Hedge fund activity in Tootsie Roll Industries, Inc. (NYSE:TR)
At the end of the third quarter, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 31% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards TR over the last 17 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Mario Gabelli’s GAMCO Investors has the most valuable position in Tootsie Roll Industries, Inc. (NYSE:TR), worth close to $33.5 million, comprising 0.3% of its total 13F portfolio. The second largest stake is held by Royce & Associates, led by Chuck Royce, holding a $26.8 million position; 0.2% of its 13F portfolio is allocated to the stock. Other peers that are bullish consist of Renaissance Technologies, John D. Gillespie’s Prospector Partners and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Prospector Partners allocated the biggest weight to Tootsie Roll Industries, Inc. (NYSE:TR), around 0.56% of its 13F portfolio. Wallace Capital Management is also relatively very bullish on the stock, earmarking 0.4 percent of its 13F equity portfolio to TR.
As aggregate interest increased, specific money managers were breaking ground themselves. Winton Capital Management, managed by David Harding, created the most valuable position in Tootsie Roll Industries, Inc. (NYSE:TR). Winton Capital Management had $1.8 million invested in the company at the end of the quarter. David E. Shaw’s D E Shaw also made a $0.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Donald Sussman’s Paloma Partners, Paul Marshall and Ian Wace’s Marshall Wace, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Tootsie Roll Industries, Inc. (NYSE:TR) but similarly valued. We will take a look at Core-Mark Holding Company, Inc. (NASDAQ:CORE), Upwork Inc. (NASDAQ:UPWK), Eventbrite, Inc. (NYSE:EB), and Suburban Propane Partners LP (NYSE:SPH). This group of stocks’ market valuations are closest to TR’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CORE | 18 | 50919 | -6 |
| UPWK | 19 | 122995 | 9 |
| EB | 23 | 267307 | 2 |
| SPH | 4 | 83169 | 0 |
| Average | 16 | 131098 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $131 million. That figure was $92 million in TR’s case. Eventbrite, Inc. (NYSE:EB) is the most popular stock in this table. On the other hand Suburban Propane Partners LP (NYSE:SPH) is the least popular one with only 4 bullish hedge fund positions. Tootsie Roll Industries, Inc. (NYSE:TR) 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 TR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on TR were disappointed as the stock returned -7.3% 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.
