Terex Corporation (TEX): Hedge Funds Are Bearish

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Terex Corporation (NYSE:TEX) and determine whether hedge funds skillfully traded this stock.

Terex Corporation (NYSE:TEX) was in 19 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 38. TEX shareholders have witnessed a decrease in activity from the world’s largest hedge funds lately. There were 21 hedge funds in our database with TEX positions at the end of the first quarter. Our calculations also showed that TEX isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Michael Gelband of ExodusPoint Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 to get excerpts of these letters in your inbox. With all of this in mind let’s go over the recent hedge fund action surrounding Terex Corporation (NYSE:TEX).

Hedge fund activity in Terex Corporation (NYSE:TEX)

At Q2’s end, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in TEX over the last 20 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Pzena Investment Management held the most valuable stake in Terex Corporation (NYSE:TEX), which was worth $110.5 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $49.9 million worth of shares. AQR Capital Management, Arrowstreet Capital, and D E Shaw 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 Pzena Investment Management allocated the biggest weight to Terex Corporation (NYSE:TEX), around 0.72% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, dishing out 0.2 percent of its 13F equity portfolio to TEX.

Seeing as Terex Corporation (NYSE:TEX) has experienced falling interest from hedge fund managers, we can see that there were a few money managers that slashed their entire stakes heading into Q3. Intriguingly, Brandon Haley’s Holocene Advisors cut the largest position of the 750 funds monitored by Insider Monkey, valued at close to $1.8 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also dumped its stock, about $0.9 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 2 funds heading into Q3.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Terex Corporation (NYSE:TEX) but similarly valued. We will take a look at Kulicke and Soffa Industries Inc. (NASDAQ:KLIC), McGrath RentCorp (NASDAQ:MGRC), Northwest Bancshares, Inc. (NASDAQ:NWBI), HNI Corp (NYSE:HNI), Veracyte Inc (NASDAQ:VCYT), Atkore International Group Inc. (NYSE:ATKR), and Allegheny Technologies Incorporated (NYSE:ATI). All of these stocks’ market caps match TEX’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.4 hedge funds with bullish positions and the average amount invested in these stocks was $86 million. That figure was $207 million in TEX’s case. Kulicke and Soffa Industries Inc. (NASDAQ:KLIC) is the most popular stock in this table. On the other hand Northwest Bancshares, Inc. (NASDAQ:NWBI) is the least popular one with only 8 bullish hedge fund positions. Terex Corporation (NYSE:TEX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TEX is 40.9. 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 positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately TEX wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on TEX were disappointed as the stock returned 3.1% in Q3 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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