Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Sensata Technologies Holding plc (NYSE:ST).
Sensata Technologies Holding plc (NYSE:ST) shareholders have witnessed a decrease in enthusiasm from smart money in recent months. ST was in 20 hedge funds' portfolios at the end of September. There were 21 hedge funds in our database with ST positions at the end of the previous quarter. Our calculations also showed that ST isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to 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 has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_758429" align="aligncenter" width="450"] Ric Dillon of Diamond Hill Capital[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to review the fresh hedge fund action regarding Sensata Technologies Holding plc (NYSE:ST).
What have hedge funds been doing with Sensata Technologies Holding plc (NYSE:ST)?
At Q3's end, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in ST over the last 17 quarters. With the smart money's capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
Among these funds, Generation Investment Management held the most valuable stake in Sensata Technologies Holding plc (NYSE:ST), which was worth $584.7 million at the end of the third quarter. On the second spot was Cantillon Capital Management which amassed $221.6 million worth of shares. Orbis Investment Management, Diamond Hill Capital, and Impax Asset Management 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 Generation Investment Management allocated the biggest weight to Sensata Technologies Holding plc (NYSE:ST), around 4.13% of its 13F portfolio. Goodnow Investment Group is also relatively very bullish on the stock, designating 3.69 percent of its 13F equity portfolio to ST.
Judging by the fact that Sensata Technologies Holding plc (NYSE:ST) has witnessed falling interest from the aggregate hedge fund industry, logic holds that there exists a select few money managers that elected to cut their entire stakes in the third quarter. Interestingly, Steve Cohen's Point72 Asset Management dropped the biggest position of the 750 funds watched by Insider Monkey, worth an estimated $7.3 million in stock. Tom Gayner's fund, Markel Gayner Asset Management, also dumped its stock, about $4 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 1 funds in the third quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Sensata Technologies Holding plc (NYSE:ST) but similarly valued. We will take a look at ABIOMED, Inc. (NASDAQ:ABMD), Pool Corporation (NASDAQ:POOL), Vedanta Limited (NYSE:VEDL), and Bunge Limited (NYSE:BG). All of these stocks' market caps are similar to ST's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ABMD,21,580988,-7 POOL,26,402099,4 VEDL,10,55913,2 BG,34,579574,3 Average,22.75,404644,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $405 million. That figure was $1378 million in ST's case. Bunge Limited (NYSE:BG) is the most popular stock in this table. On the other hand Vedanta Limited (NYSE:VEDL) is the least popular one with only 10 bullish hedge fund positions. Sensata Technologies Holding plc (NYSE:ST) 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately ST wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ST investors were disappointed as the stock returned 2.9% during the first two months of the fourth 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 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.