What Hedge Funds Think About TransDigm Group Incorporated (TDG)?

Looking for high-potential stocks? Just follow the big players within the hedge fund industry! This is not an ad, but let’s take a brief look at what statistics has to say about hedge funds’ stock picking abilities. The Standard and Poor’s 500 Index returned approximately 5.2% in the 12 months ending October 30, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a ‘winner’ by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, hedge funds’ 30 preferred S&P 500 stocks (as of September 2014) generated a return of 9.5% during the same 12-month period, while 63% of these stock picks outperformed the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 16-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like TransDigm Group Incorporated (NYSE:TDG).

TransDigm Group Incorporated has witnessed an increase in hedge fund interest recently as the number of funds with long positions inched up by three to 51. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as KB Financial Group, Inc. (ADR) (NYSE:KB), Starwood Hotels & Resorts Worldwide, Inc (NYSE:HOT), and Whole Foods Market, Inc. (NASDAQ:WFM) to gather more data points.

In the eyes of most stock holders, hedge funds are assumed to be slow, old investment tools of years past. While there are more than 8000 funds trading at present, our researchers look at the leaders of this club, about 700 funds. It is estimated that this group of investors direct bulk of the hedge fund industry’s total capital, and by watching their highest performing equity investments, Insider Monkey has unearthed a few investment strategies that have historically exceeded the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy outpaced the S&P 500 index by 12 percentage points a year for a decade in their back tests.

Keeping this in mind, we’re going to view the fresh action surrounding TransDigm Group Incorporated (NYSE:TDG).

Hedge fund activity in TransDigm Group Incorporated (NYSE:TDG)

At the end of the third quarter, a total of 51 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from the previous quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Lone Pine Capital, managed by Stephen Mandel, holds the number one position in TransDigm Group Incorporated (NYSE:TDG). Lone Pine Capital has a $470.6 million position in the stock, comprising 1.9% of its 13F portfolio. Coming in second is Pennant Capital Management, led by Alan Fournier, holding a $293.1 million position; the fund has 6.2% of its 13F portfolio invested in the stock. Remaining peers that are bullish consist of Sharlyn C. Heslam’s Stockbridge Partners, Bain Capital’s Brookside Capital and Chase Coleman’s Tiger Global Management LLC.

Consequently, key hedge funds were leading the bulls’ herd. Blue Ridge Capital, managed by John Griffin, created the largest position in TransDigm Group Incorporated (NYSE:TDG). Blue Ridge Capital had $205 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $12.1 million position during the quarter. The other funds with brand new TDG positions are Jim Simons’s Renaissance Technologies, George Hall’s Clinton Group, and John Fichthorn’s Dialectic Capital Management.

Let’s now take a look at hedge fund activity in other stocks similar to TransDigm Group Incorporated (NYSE:TDG). We will take a look at KB Financial Group, Inc. (ADR) (NYSE:KB), Starwood Hotels & Resorts Worldwide, Inc (NYSE:HOT), Whole Foods Market, Inc. (NASDAQ:WFM), and Harley-Davidson, Inc. (NYSE:HOG). This group of stocks’ market values resemble TDG’s market value.

As you can see these stocks had an average of 28.5 hedge funds with bullish positions and the average amount invested in these stocks was $1.19 billion. That figure was $3.58 billion in TDG’s case. Starwood Hotels & Resorts Worldwide, Inc (NYSE:HOT) is the most popular stock in this table with 47 long positions and TransDigm Group Incorporated (NYSE:TDG) has attracted the attention of even more investors. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.