Were Hedge Funds Right About TransDigm Group Incorporated (TDG)?

A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended March 31st, so let’s proceed with the discussion of the hedge fund sentiment on TransDigm Group Incorporated (NYSE:TDG).

Is TransDigm Group Incorporated (NYSE:TDG) a buy here? Money managers were getting less bullish. The number of long hedge fund positions decreased by 2 lately. TransDigm Group Incorporated (NYSE:TDG) was in 62 hedge funds’ portfolios at the end of March. The all time high for this statistic is 64. Our calculations also showed that TDG isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 64 hedge funds in our database with TDG positions at the end of the fourth quarter.

According to most shareholders, hedge funds are seen as slow, old financial vehicles of yesteryear. While there are more than 8000 funds with their doors open at the moment, Our experts hone in on the top tier of this club, about 850 funds. These hedge fund managers watch over the lion’s share of the smart money’s total asset base, and by paying attention to their finest investments, Insider Monkey has spotted several investment strategies that have historically outpaced the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Also, our monthly newsletter’s portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .

Charles Clough of Clough Capital Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now we’re going to view the recent hedge fund action surrounding TransDigm Group Incorporated (NYSE:TDG).

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

At first quarter’s end, a total of 62 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from the fourth quarter of 2020. By comparison, 58 hedge funds held shares or bullish call options in TDG a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

Among these funds, Tiger Global Management LLC held the most valuable stake in TransDigm Group Incorporated (NYSE:TDG), which was worth $1033.1 million at the end of the fourth quarter. On the second spot was Stockbridge Partners which amassed $913.9 million worth of shares. Matrix Capital Management, AltaRock Partners, and Windacre Partnership 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 Anabranch Capital allocated the biggest weight to TransDigm Group Incorporated (NYSE:TDG), around 25.39% of its 13F portfolio. Stockbridge Partners is also relatively very bullish on the stock, dishing out 22.26 percent of its 13F equity portfolio to TDG.

Judging by the fact that TransDigm Group Incorporated (NYSE:TDG) has faced declining sentiment from hedge fund managers, logic holds that there exists a select few money managers who were dropping their entire stakes last quarter. At the top of the heap, Robert Pitts’s Steadfast Capital Management said goodbye to the largest stake of all the hedgies followed by Insider Monkey, valued at close to $151.2 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also cut its stock, about $133.8 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as TransDigm Group Incorporated (NYSE:TDG) but similarly valued. These stocks are Brown-Forman Corporation (NYSE:BF), Suncor Energy Inc. (NYSE:SU), BeiGene, Ltd. (NASDAQ:BGNE), Archer Daniels Midland Company (NYSE:ADM), Motorola Solutions Inc (NYSE:MSI), Republic Services, Inc. (NYSE:RSG), and Companhia Paranaense de Energia – COPEL (NYSE:ELP). This group of stocks’ market caps are closest to TDG’s market cap.

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As you can see these stocks had an average of 27.3 hedge funds with bullish positions and the average amount invested in these stocks was $1653 million. That figure was $6291 million in TDG’s case. Republic Services, Inc. (NYSE:RSG) is the most popular stock in this table. On the other hand Companhia Paranaense de Energia – COPEL (NYSE:ELP) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks TransDigm Group Incorporated (NYSE:TDG) is more popular among hedge funds. Our overall hedge fund sentiment score for TDG is 82.1. 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. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 25.8% in 2021 through August 6th and still beat the market by 6.7 percentage points. Unfortunately TDG wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on TDG were disappointed as the stock returned 7% since the end of the first quarter (through 8/6) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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