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Hedge Funds Are Cashing Out Of Terex Corporation (TEX)

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Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 900 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Terex Corporation (NYSE:TEX), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

Terex Corporation (NYSE:TEX) investors should be aware of a decrease in support from the world's most elite money managers lately. Terex Corporation (NYSE:TEX) was in 27 hedge funds' portfolios at the end of June. The all time high for this statistic is 38. Our calculations also showed that TEX isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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' 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 79 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.

Richard Driehaus of Driehaus Capital

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. Keeping this in mind we're going to analyze the new hedge fund action encompassing Terex Corporation (NYSE:TEX).

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

At second quarter's end, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from the previous quarter. On the other hand, there were a total of 19 hedge funds with a bullish position in TEX a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is TEX A Good Stock To Buy?
Is TEX A Good Stock To Buy?

More specifically, Pzena Investment Management was the largest shareholder of Terex Corporation (NYSE:TEX), with a stake worth $159.7 million reported as of the end of June. Trailing Pzena Investment Management was Fisher Asset Management, which amassed a stake valued at $110.8 million. Citadel Investment Group, Driehaus Capital, and AQR Capital 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 Pzena Investment Management allocated the biggest weight to Terex Corporation (NYSE:TEX), around 0.62% of its 13F portfolio. ZWEIG DIMENNA PARTNERS is also relatively very bullish on the stock, designating 0.61 percent of its 13F equity portfolio to TEX.

Due to the fact that Terex Corporation (NYSE:TEX) has witnessed bearish sentiment from hedge fund managers, it's easy to see that there lies a certain "tier" of funds that slashed their full holdings by the end of the second quarter. Intriguingly, Joe Milano's Greenhouse Funds said goodbye to the biggest stake of all the hedgies tracked by Insider Monkey, totaling close to $12.1 million in stock, and Robert Vincent McHugh's Jade Capital Advisors was right behind this move, as the fund cut about $2.8 million worth. These moves are interesting, as total hedge fund interest was cut by 4 funds by the end of the second quarter.

Let's go over hedge fund activity in other stocks similar to Terex Corporation (NYSE:TEX). We will take a look at SAGE Therapeutics Inc (NASDAQ:SAGE), J&J Snack Foods Corp. (NASDAQ:JJSF), LCI Industries (NYSE:LCII), Walker & Dunlop Inc. (NYSE:WD), Herc Holdings Inc. (NYSE:HRI), Grocery Outlet Holding Corp. (NASDAQ:GO), and Hillenbrand, Inc. (NYSE:HI). This group of stocks' market valuations resemble TEX's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SAGE,27,258449,0 JJSF,15,70134,0 LCII,15,109332,-3 WD,11,78419,-8 HRI,20,1070371,3 GO,13,42791,-2 HI,14,23903,-1 Average,16.4,236200,-1.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.4 hedge funds with bullish positions and the average amount invested in these stocks was $236 million. That figure was $471 million in TEX's case. SAGE Therapeutics Inc (NASDAQ:SAGE) is the most popular stock in this table. On the other hand Walker & Dunlop Inc. (NYSE:WD) is the least popular one with only 11 bullish hedge fund positions. Terex Corporation (NYSE:TEX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TEX is 72.3. 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. 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 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 24.9% in 2021 through October 15th and beat the market again by 4.5 percentage points. Unfortunately TEX wasn't nearly as popular as these 5 stocks and hedge funds that were betting on TEX were disappointed as the stock returned -8.9% since the end of June (through 10/15) 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 many of these stocks already outperformed the market since 2019.

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