Is TMX Stock A Buy or Sell?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Terminix Global Holdings, Inc. (NYSE:TMX).

Is TMX stock a buy? Terminix Global Holdings, Inc. (NYSE:TMX) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 30 hedge funds’ portfolios at the end of December. Our calculations also showed that TMX isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Axalta Coating Systems Ltd (NYSE:AXTA), Planet Fitness Inc (NYSE:PLNT), and nCino, Inc. (NASDAQ:NCNO) to gather more data points.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here).

Jeffrey Gates of Gates 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. Now let’s take a look at the recent hedge fund action surrounding Terminix Global Holdings, Inc. (NYSE:TMX).

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

At the end of the fourth quarter, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. By comparison, 42 hedge funds held shares or bullish call options in TMX a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

The largest stake in Terminix Global Holdings, Inc. (NYSE:TMX) was held by Iridian Asset Management, which reported holding $204.3 million worth of stock at the end of December. It was followed by Gates Capital Management with a $136.6 million position. Other investors bullish on the company included Senator Investment Group, Hawk Ridge Management, and D E Shaw. 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 4.11% of its 13F portfolio. Iridian Asset Management is also relatively very bullish on the stock, setting aside 3.72 percent of its 13F equity portfolio to TMX.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: 999. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Iridian Asset Management).

Let’s also examine hedge fund activity in other stocks similar to Terminix Global Holdings, Inc. (NYSE:TMX). We will take a look at Axalta Coating Systems Ltd (NYSE:AXTA), Planet Fitness Inc (NYSE:PLNT), nCino, Inc. (NASDAQ:NCNO), Manhattan Associates, Inc. (NASDAQ:MANH), PVH Corp (NYSE:PVH), Post Holdings Inc (NYSE:POST), and ITT Inc. (NYSE:ITT). 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 33.7 hedge funds with bullish positions and the average amount invested in these stocks was $988 million. That figure was $624 million in TMX’s case. Planet Fitness Inc (NYSE:PLNT) is the most popular stock in this table. On the other hand Manhattan Associates, Inc. (NASDAQ:MANH) is the least popular one with only 23 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 41. 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 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 gained 12.2% in 2021 through April 12th and surpassed the market again by 1.5 percentage points. Unfortunately TMX wasn’t nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); TMX investors were disappointed as the stock returned -4.4% since the end of December (through 4/12) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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