We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind let’s see whether Texas Instruments Incorporated (NASDAQ:TXN) represents a good buying opportunity at the moment. Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Texas Instruments Incorporated (NASDAQ:TXN) has seen a decrease in hedge fund sentiment lately. TXN was in 50 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 60 hedge funds in our database with TXN holdings at the end of the previous quarter. Our calculations also showed that TXN isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
David Blood of Generation Investment Management
With all of this in mind let’s analyze the recent hedge fund action surrounding Texas Instruments Incorporated (NASDAQ:TXN).
What does smart money think about Texas Instruments Incorporated (NASDAQ:TXN)?
At Q4’s end, a total of 50 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from the previous quarter. By comparison, 44 hedge funds held shares or bullish call options in TXN 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.
More specifically, Generation Investment Management was the largest shareholder of Texas Instruments Incorporated (NASDAQ:TXN), with a stake worth $632.3 million reported as of the end of September. Trailing Generation Investment Management was AQR Capital Management, which amassed a stake valued at $489 million. Diamond Hill Capital, Lansdowne Partners, and Citadel Investment Group 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 Heathbridge Capital Management allocated the biggest weight to Texas Instruments Incorporated (NASDAQ:TXN), around 5.63% of its 13F portfolio. Bristol Gate Capital Partners is also relatively very bullish on the stock, setting aside 4.74 percent of its 13F equity portfolio to TXN.
Due to the fact that Texas Instruments Incorporated (NASDAQ:TXN) has experienced a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there was a specific group of money managers that decided to sell off their positions entirely in the third quarter. At the top of the heap, John Hurley’s Cavalry Asset Management sold off the biggest position of all the hedgies tracked by Insider Monkey, worth about $27.2 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund cut about $24.4 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 10 funds in the third quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Texas Instruments Incorporated (NASDAQ:TXN) but similarly valued. We will take a look at BHP Group (NYSE:BBL), International Business Machines Corp. (NYSE:IBM), NextEra Energy, Inc. (NYSE:NEE), and GlaxoSmithKline plc (NYSE:GSK). This group of stocks’ market values are closest to TXN’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BBL | 24 | 1238737 | 2 |
| IBM | 50 | 1289370 | 5 |
| NEE | 46 | 966067 | 1 |
| GSK | 26 | 2075772 | -1 |
| Average | 36.5 | 1392487 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 36.5 hedge funds with bullish positions and the average amount invested in these stocks was $1392 million. That figure was $2387 million in TXN’s case. International Business Machines Corp. (NYSE:IBM) is the most popular stock in this table. On the other hand BHP Billiton plc (NYSE:BBL) is the least popular one with only 24 bullish hedge fund positions. Texas Instruments Incorporated (NASDAQ:TXN) is not the most popular stock in this group but hedge fund interest is still above average. 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 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately TXN wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on TXN were disappointed as the stock returned -13.2% during the same time period 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.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
