Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying for a while now that the current market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the fourth quarter, many investors lost money due to unpredictable events such as the sudden increase in long-term interest rates and unintended consequences of the trade war with China. Nevertheless, many of the stocks that tanked in the third quarter still sport strong fundamentals and their decline was more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Trimble Inc. (NASDAQ:TRMB) changed recently.
Is Trimble Inc. (NASDAQ:TRMB) a sound stock to buy now? Prominent investors are becoming less hopeful. The number of bullish hedge fund bets were trimmed by 2 in recent months. Our calculations also showed that TRMB isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 18 percentage points since May 2014 through December 3, 2018 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We’re going to take a gander at the new hedge fund action encompassing Trimble Inc. (NASDAQ:TRMB).
How have hedgies been trading Trimble Inc. (NASDAQ:TRMB)?
At Q3’s end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards TRMB over the last 13 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Impax Asset Management was the largest shareholder of Trimble Inc. (NASDAQ:TRMB), with a stake worth $238.8 million reported as of the end of September. Trailing Impax Asset Management was Select Equity Group, which amassed a stake valued at $158.4 million. D E Shaw, Millennium Management, and Balyasny Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Trimble Inc. (NASDAQ:TRMB) has faced a decline in interest from the smart money, it’s safe to say that there were a few funds that decided to sell off their entire stakes by the end of the third quarter. It’s worth mentioning that Bruce Kovner’s Caxton Associates LP dropped the largest position of all the hedgies tracked by Insider Monkey, comprising about $1.9 million in stock, and Ray Dalio’s Bridgewater Associates was right behind this move, as the fund dropped about $1.8 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 2 funds by the end of the third quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Trimble Inc. (NASDAQ:TRMB) but similarly valued. These stocks are Snap Inc. (NYSE:SNAP), Albemarle Corporation (NYSE:ALB), Fidelity National Financial Inc (NYSE:FNF), and UDR, Inc. (NYSE:UDR). All of these stocks’ market caps resemble TRMB’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SNAP | 17 | 514140 | 2 |
| ALB | 22 | 353670 | -5 |
| FNF | 29 | 491965 | 3 |
| UDR | 16 | 446632 | -1 |
| Average | 21 | 451602 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $452 million. That figure was $607 million in TRMB’s case. Fidelity National Financial Inc (NYSE:FNF) is the most popular stock in this table. On the other hand UDR, Inc. (NYSE:UDR) is the least popular one with only 16 bullish hedge fund positions. Trimble Inc. (NASDAQ:TRMB) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard FNF might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
