Legendary investors such as Leon Cooperman and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don’t publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That’s why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze TransDigm Group Incorporated (NYSE:TDG) from the perspective of those elite funds.
TransDigm Group Incorporated (NYSE:TDG) was in 48 hedge funds’ portfolios at the end of September. TDG shareholders have witnessed an increase in support from the world’s most elite money managers of late. There were 41 hedge funds in our database with TDG positions at the end of the previous quarter. Our calculations also showed that TDG isn’t among the 30 most popular stocks among hedge funds.
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 flagship best performing hedge funds strategy returned 6.3% year to date (through December 3rd) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 18 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
We’re going to take a look at the fresh hedge fund action regarding TransDigm Group Incorporated (NYSE:TDG).
What have hedge funds been doing with TransDigm Group Incorporated (NYSE:TDG)?
At the end of the third quarter, a total of 48 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in TDG over the last 13 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in TransDigm Group Incorporated (NYSE:TDG) was held by Tiger Global Management LLC, which reported holding $686.5 million worth of stock at the end of September. It was followed by Stockbridge Partners with a $671.2 million position. Other investors bullish on the company included Lone Pine Capital, SPO Advisory Corp, and Matrix Capital Management.
As industrywide interest jumped, some big names were breaking ground themselves. Point State Capital, managed by Zach Schreiber, initiated the biggest position in TransDigm Group Incorporated (NYSE:TDG). Point State Capital had $38.3 million invested in the company at the end of the quarter. John Ku’s Manor Road Capital Partners also initiated a $18.6 million position during the quarter. The other funds with brand new TDG positions are Paul Marshall and Ian Wace’s Marshall Wace LLP, Lee Ainslie’s Maverick Capital, and Paul Tudor Jones’s Tudor Investment Corp.
Let’s also examine hedge fund activity in other stocks similar to TransDigm Group Incorporated (NYSE:TDG). These stocks are Verisign, Inc. (NASDAQ:VRSN), Expedia Group, Inc. (NASDAQ:EXPE), Eversource Energy (NYSE:ES), and Dollar Tree, Inc. (NASDAQ:DLTR). All of these stocks’ market caps match TDG’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VRSN | 29 | 4820588 | 4 |
| EXPE | 37 | 3118988 | -1 |
| ES | 19 | 708140 | 4 |
| DLTR | 53 | 1885624 | 5 |
| Average | 34.5 | 2633 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.5 hedge funds with bullish positions and the average amount invested in these stocks was $2.63 billion. That figure was $3.88 billion in TDG’s case. Dollar Tree, Inc. (NASDAQ:DLTR) is the most popular stock in this table. On the other hand Eversource Energy (NYSE:ES) is the least popular one with only 19 bullish hedge fund positions. TransDigm Group Incorporated (NYSE:TDG) 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. In this regard DLTR might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
