Is Terminix Global Holdings, Inc. (TMX) A Good Stock To Buy?

Is Terminix Global Holdings, Inc. (NYSE:TMX) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Is TMX a good stock to buy? Terminix Global Holdings, Inc. (NYSE:TMX) shareholders have witnessed a decrease in support from the world’s most elite money managers recently. Terminix Global Holdings, Inc. (NYSE:TMX) was in 22 hedge funds’ portfolios at the end of June. The all time high for this statistic is 42. There were 27 hedge funds in our database with TMX positions at the end of the first quarter. Our calculations also showed that TMX isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 S&P 500 ETFs by 79 percentage points since March 2017 (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.

Jeffrey Gates of Gates 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 EV 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. With all of this in mind we’re going to take a glance at the new hedge fund action encompassing Terminix Global Holdings, Inc. (NYSE:TMX).

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

At Q2’s end, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -19% from one quarter earlier. On the other hand, there were a total of 35 hedge funds with a bullish position in TMX a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Terminix Global Holdings, Inc. (NYSE:TMX) was held by Iridian Asset Management, which reported holding $183.6 million worth of stock at the end of June. It was followed by Gates Capital Management with a $161.2 million position. Other investors bullish on the company included GAMCO Investors, Renaissance Technologies, and Ancora Advisors. In terms of the portfolio weights assigned to each position Gates Capital Management allocated the biggest weight to Terminix Global Holdings, Inc. (NYSE:TMX), around 4.65% of its 13F portfolio. Iridian Asset Management is also relatively very bullish on the stock, setting aside 3.21 percent of its 13F equity portfolio to TMX.

Seeing as Terminix Global Holdings, Inc. (NYSE:TMX) has witnessed declining sentiment from hedge fund managers, logic holds that there were a few money managers that decided to sell off their positions entirely last quarter. It’s worth mentioning that David Brown’s Hawk Ridge Management said goodbye to the largest stake of the “upper crust” of funds monitored by Insider Monkey, worth about $40 million in stock. John Overdeck and David Siegel’s fund, Two Sigma Advisors, also said goodbye to its stock, about $7.1 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 5 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to Terminix Global Holdings, Inc. (NYSE:TMX). These stocks are The Timken Company (NYSE:TKR), Perrigo Co Plc (NYSE:PRGO), Varonis Systems Inc (NASDAQ:VRNS), Penske Automotive Group, Inc. (NYSE:PAG), Tandem Diabetes Care Inc (NASDAQ:TNDM), Landstar System, Inc. (NASDAQ:LSTR), and Ingredion Incorporated (NYSE:INGR). This group of stocks’ market caps resemble TMX’s market cap.

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As you can see these stocks had an average of 23.1 hedge funds with bullish positions and the average amount invested in these stocks was $290 million. That figure was $418 million in TMX’s case. Tandem Diabetes Care Inc (NASDAQ:TNDM) is the most popular stock in this table. On the other hand Landstar System, Inc. (NASDAQ:LSTR) is the least popular one with only 16 bullish hedge fund positions. Terminix Global Holdings, Inc. (NYSE:TMX) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for TMX is 34.5. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 24% in 2021 through October 22nd and surpassed the market again by 1.6 percentage points. Unfortunately TMX wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); TMX investors were disappointed as the stock returned -14% since the end of June (through 10/22) 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 in 2021.

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