Here is What Hedge Funds Think About Tempur Sealy International Inc. (TPX)

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Tempur Sealy International Inc. (NYSE:TPX).

Tempur Sealy International Inc. (NYSE:TPX) shareholders have witnessed a decrease in activity from the world’s largest hedge funds recently. Tempur Sealy International Inc. (NYSE:TPX) was in 37 hedge funds’ portfolios at the end of March. The all time high for this statistic is 46. Our calculations also showed that TPX isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Ricky Sandler of Eminence Capital

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 battery 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. Now we’re going to check out the latest hedge fund action regarding Tempur Sealy International Inc. (NYSE:TPX).

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

Heading into the second quarter of 2021, a total of 37 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the fourth quarter of 2020. The graph below displays the number of hedge funds with bullish position in TPX over the last 23 quarters. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

Among these funds, H Partners Management held the most valuable stake in Tempur Sealy International Inc. (NYSE:TPX), which was worth $402.2 million at the end of the fourth quarter. On the second spot was Eminence Capital which amassed $181.6 million worth of shares. Arrowstreet Capital, Melvin Capital Management, and Scopus Asset Management 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 H Partners Management allocated the biggest weight to Tempur Sealy International Inc. (NYSE:TPX), around 36.51% of its 13F portfolio. Kehrs Ridge Capital is also relatively very bullish on the stock, earmarking 4.56 percent of its 13F equity portfolio to TPX.

Since Tempur Sealy International Inc. (NYSE:TPX) has faced declining sentiment from the smart money, logic holds that there lies a certain “tier” of hedgies who were dropping their full holdings last quarter. Interestingly, William Duhamel’s Route One Investment Company cut the largest position of the 750 funds tracked by Insider Monkey, worth close to $185.8 million in stock. Doug Gordon, Jon Hilsabeck and Don Jabro’s fund, Shellback Capital, also cut its stock, about $29.7 million worth. These moves are important to note, as aggregate hedge fund interest fell by 6 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to Tempur Sealy International Inc. (NYSE:TPX). These stocks are Chemed Corporation (NYSE:CHE), Skillz Inc. (NYSE:SKLZ), Tetra Tech, Inc. (NASDAQ:TTEK), Lincoln Electric Holdings, Inc. (NASDAQ:LECO), Donaldson Company, Inc. (NYSE:DCI), Hill-Rom Holdings, Inc. (NYSE:HRC), and Advanced Drainage Systems Inc. (NYSE:WMS). All of these stocks’ market caps match TPX’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.6 hedge funds with bullish positions and the average amount invested in these stocks was $481 million. That figure was $1128 million in TPX’s case. Hill-Rom Holdings, Inc. (NYSE:HRC) is the most popular stock in this table. On the other hand Lincoln Electric Holdings, Inc. (NASDAQ:LECO) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Tempur Sealy International Inc. (NYSE:TPX) is more popular among hedge funds. Our overall hedge fund sentiment score for TPX is 73.1. 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. 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 19.3% in 2021 through June 25th and still beat the market by 4.8 percentage points. Unfortunately TPX wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on TPX were disappointed as the stock returned 6.2% since the end of the first quarter (through 6/25) 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 since 2019.

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