The Toro Company (TTC): Hedge Funds Are Nibbling

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of The Toro Company (NYSE:TTC) based on that data.

The Toro Company (NYSE:TTC) has experienced an increase in activity from the world’s largest hedge funds in recent months. Our calculations also showed that TTC isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

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 S&P 500 ETFs by more than 58 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Richard Chilton of Chilton Investment Company

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a glance at the new hedge fund action encompassing The Toro Company (NYSE:TTC).

How have hedgies been trading The Toro Company (NYSE:TTC)?

At Q1’s end, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from the previous quarter. The graph below displays the number of hedge funds with bullish position in TTC over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Robert Joseph Caruso’s Select Equity Group has the largest position in The Toro Company (NYSE:TTC), worth close to $380.8 million, accounting for 2.6% of its total 13F portfolio. Sitting at the No. 2 spot is Impax Asset Management, managed by Ian Simm, which holds a $95.8 million position; 1.3% of its 13F portfolio is allocated to the company. Some other members of the smart money with similar optimism comprise Ken Fisher’s Fisher Asset Management, Richard Chilton’s Chilton Investment Company and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Bishop Rock Capital allocated the biggest weight to The Toro Company (NYSE:TTC), around 4.1% of its 13F portfolio. Sandbar Asset Management is also relatively very bullish on the stock, earmarking 3.04 percent of its 13F equity portfolio to TTC.

With a general bullishness amongst the heavyweights, key money managers were breaking ground themselves. Millennium Management, managed by Israel Englander, established the biggest position in The Toro Company (NYSE:TTC). Millennium Management had $19.2 million invested in the company at the end of the quarter. John Brennan’s Sirios Capital Management also initiated a $16.1 million position during the quarter. The other funds with brand new TTC positions are Michael Cowley’s Sandbar Asset Management, Peter Muller’s PDT Partners, and Greg Eisner’s Engineers Gate Manager.

Let’s also examine hedge fund activity in other stocks similar to The Toro Company (NYSE:TTC). These stocks are Chemed Corporation (NYSE:CHE), Vornado Realty Trust (NYSE:VNO), WABCO Holdings Inc. (NYSE:WBC), and AngloGold Ashanti Limited (NYSE:AU). This group of stocks’ market values are similar to TTC’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $600 million. That figure was $676 million in TTC’s case. WABCO Holdings Inc. (NYSE:WBC) is the most popular stock in this table. On the other hand AngloGold Ashanti Limited (NYSE:AU) is the least popular one with only 19 bullish hedge fund positions. The Toro Company (NYSE:TTC) 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. 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 13.9% in 2020 through June 10th and surpassed the market by 14.2 percentage points. Unfortunately TTC wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); TTC investors were disappointed as the stock returned 8.7% during the second quarter 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 most of these stocks already outperformed the market in 2020.

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