While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Teradata Corporation (NYSE:TDC).
Is TDC stock a buy? Teradata Corporation (NYSE:TDC) investors should pay attention to a decrease in support from the world’s most elite money managers recently. Teradata Corporation (NYSE:TDC) was in 26 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 33. There were 33 hedge funds in our database with TDC holdings at the end of September. Our calculations also showed that TDC isn’t among the 30 most popular stocks among hedge funds (click for Q4 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 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Peter Rathjens of Arrowstreet Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. 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 website. With all of this in mind let’s take a look at the fresh hedge fund action encompassing Teradata Corporation (NYSE:TDC).
Do Hedge Funds Think TDC Is A Good Stock To Buy Now?
Heading into the first quarter of 2021, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of -21% from the previous quarter. The graph below displays the number of hedge funds with bullish position in TDC over the last 22 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
Among these funds, Lynrock Lake held the most valuable stake in Teradata Corporation (NYSE:TDC), which was worth $109 million at the end of the fourth quarter. On the second spot was Empyrean Capital Partners which amassed $72.8 million worth of shares. Arrowstreet Capital, Two Sigma Advisors, and Renaissance Technologies 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 Lynrock Lake allocated the biggest weight to Teradata Corporation (NYSE:TDC), around 8.33% of its 13F portfolio. Empyrean Capital Partners is also relatively very bullish on the stock, designating 2.39 percent of its 13F equity portfolio to TDC.
Since Teradata Corporation (NYSE:TDC) has witnessed falling interest from the entirety of the hedge funds we track, logic holds that there is a sect of fund managers who sold off their positions entirely heading into Q1. Interestingly, Clint Carlson’s Carlson Capital sold off the biggest position of the 750 funds followed by Insider Monkey, totaling close to $18.8 million in stock, and Thyra Zerhusen’s Fairpointe Capital was right behind this move, as the fund dumped about $14.3 million worth. These transactions are interesting, as total hedge fund interest dropped by 7 funds heading into Q1.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Teradata Corporation (NYSE:TDC) but similarly valued. We will take a look at ADC Therapeutics SA (NYSE:ADCT), Matson Inc. (NYSE:MATX), SPX FLOW, Inc. (NASDAQ:FLOW), Sunstone Hotel Investors Inc (NYSE:SHO), SPX Corporation (NYSE:SPXC), Outset Medical, Inc. (NASDAQ:OM), and EPR Properties (NYSE:EPR). This group of stocks’ market caps resemble TDC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ADCT | 12 | 319410 | -7 |
| MATX | 14 | 13500 | 5 |
| FLOW | 12 | 185091 | -1 |
| SHO | 16 | 100141 | -1 |
| SPXC | 13 | 45446 | 0 |
| OM | 24 | 585865 | -3 |
| EPR | 15 | 382334 | -9 |
| Average | 15.1 | 233112 | -2.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.1 hedge funds with bullish positions and the average amount invested in these stocks was $233 million. That figure was $320 million in TDC’s case. Outset Medical, Inc. (NASDAQ:OM) is the most popular stock in this table. On the other hand ADC Therapeutics SA (NYSE:ADCT) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Teradata Corporation (NYSE:TDC) is more popular among hedge funds. Our overall hedge fund sentiment score for TDC is 71.6. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks returned 12.3% in 2021 through April 19th but still managed to beat the market by 0.9 percentage points. Hedge funds were also right about betting on TDC as the stock returned 71.7% since the end of December (through 4/19) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.
