Hedge fund managers like David Einhorn, Bill Ackman, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Tower International Inc (NYSE:TOWR).
Tower International Inc (NYSE:TOWR) was in 13 hedge funds’ portfolios at the end of March. TOWR has experienced a decrease in hedge fund interest of late. There were 16 hedge funds in our database with TOWR positions at the end of the previous quarter. Our calculations also showed that TOWR isn’t among the 30 most popular stocks among hedge funds.
If you’d ask most shareholders, hedge funds are perceived as worthless, old investment vehicles of the past. While there are greater than 8000 funds in operation at the moment, Our experts look at the masters of this group, about 750 funds. It is estimated that this group of investors have their hands on the majority of the smart money’s total capital, and by keeping an eye on their highest performing investments, Insider Monkey has uncovered numerous investment strategies that have historically outpaced the broader indices. Insider Monkey’s flagship hedge fund strategy beat the S&P 500 index by around 5 percentage points per year since its inception in May 2014 through June 18th. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 28.2% since February 2017 (through June 18th) even though the market was up nearly 30% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 8.2% in a month whereas our long picks outperformed the market by 2.5 percentage points in this volatile 5 week period (our long picks also beat the market by 15 percentage points so far this year).
Let’s view the recent hedge fund action regarding Tower International Inc (NYSE:TOWR).
How are hedge funds trading Tower International Inc (NYSE:TOWR)?
Heading into the second quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -19% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in TOWR over the last 15 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
The largest stake in Tower International Inc (NYSE:TOWR) was held by Royce & Associates, which reported holding $15.7 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $7 million position. Other investors bullish on the company included Millennium Management, D E Shaw, and Arrowstreet Capital.
Since Tower International Inc (NYSE:TOWR) has witnessed falling interest from the entirety of the hedge funds we track, it’s easy to see that there is a sect of money managers who were dropping their positions entirely last quarter. At the top of the heap, Paul Marshall and Ian Wace’s Marshall Wace LLP sold off the biggest investment of the “upper crust” of funds monitored by Insider Monkey, worth an estimated $4.6 million in stock, and Thomas Bailard’s Bailard Inc was right behind this move, as the fund said goodbye to about $0.5 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 3 funds last quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Tower International Inc (NYSE:TOWR) but similarly valued. We will take a look at Diplomat Pharmacy Inc (NYSE:DPLO), Golden Star Resources Ltd. (NYSEAMEX:GSS), Global Indemnity Limited (NASDAQ:GBLI), and VirnetX Holding Corporation (NYSEAMEX:VHC). This group of stocks’ market caps are closest to TOWR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DPLO | 14 | 85694 | 4 |
| GSS | 3 | 10870 | -1 |
| GBLI | 6 | 35423 | 1 |
| VHC | 2 | 615 | 1 |
| Average | 6.25 | 33151 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.25 hedge funds with bullish positions and the average amount invested in these stocks was $33 million. That figure was $42 million in TOWR’s case. Diplomat Pharmacy Inc (NYSE:DPLO) is the most popular stock in this table. On the other hand VirnetX Holding Corporation (NYSEAMEX:VHC) is the least popular one with only 2 bullish hedge fund positions. Tower International Inc (NYSE:TOWR) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately TOWR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on TOWR were disappointed as the stock returned -13.7% during the same period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
