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Hedge Funds Changing Their Minds About Terex Corporation (TEX)?

Nina Todic

Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in Q4 of 2018 due to various reasons. Nevertheless, the data show elite investors' consensus picks have done well on average over the long-term. The top 20 stocks among hedge funds beat the S&P 500 Index ETFs by nearly 10 percentage points during the first 11 months of 2019. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at Terex Corporation (NYSE:TEX) from the perspective of those elite funds.

Is Terex Corporation (NYSE:TEX) a buy, sell, or hold? The best stock pickers are in an optimistic mood. The number of long hedge fund positions rose by 3 in recent months. Our calculations also showed that TEX 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.

5 Most Popular Stocks Among Hedge Funds

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 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 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.

[caption id="attachment_30621" align="aligncenter" width="487"] Cliff Asness of AQR Capital Management[/caption]

AQR CAPITAL MANAGEMENT

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. We're going to take a gander at the recent hedge fund action surrounding Terex Corporation (NYSE:TEX).

What does smart money think about Terex Corporation (NYSE:TEX)?

Heading into the fourth quarter of 2019, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 20% from one quarter earlier. On the other hand, there were a total of 21 hedge funds with a bullish position in TEX a year ago. With hedge funds' capital changing hands, there exists a few noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

The largest stake in Terex Corporation (NYSE:TEX) was held by Pzena Investment Management, which reported holding $94.4 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $65.1 million position. Other investors bullish on the company included Marcato Capital Management, Citadel Investment Group, and AQR Capital Management. In terms of the portfolio weights assigned to each position Marcato Capital Management allocated the biggest weight to Terex Corporation (NYSE:TEX), around 26.58% of its 13F portfolio. Pzena Investment Management is also relatively very bullish on the stock, dishing out 0.51 percent of its 13F equity portfolio to TEX.

Consequently, key money managers were leading the bulls' herd. Renaissance Technologies initiated the biggest position in Terex Corporation (NYSE:TEX). Renaissance Technologies had $3.5 million invested in the company at the end of the quarter. Minhua Zhang's Weld Capital Management also initiated a $0.8 million position during the quarter. The other funds with new positions in the stock are Paul Tudor Jones's Tudor Investment Corp, Mike Vranos's Ellington, and Donald Sussman's Paloma Partners.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Terex Corporation (NYSE:TEX) but similarly valued. These stocks are OSI Systems, Inc. (NASDAQ:OSIS), Knowles Corporation (NYSE:KN), Columbia Financial, Inc. (NASDAQ:CLBK), and First Majestic Silver Corp (NYSE:AG). This group of stocks' market values resemble TEX's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OSIS,22,179941,9 KN,26,264352,4 CLBK,10,38284,-2 AG,14,33132,5 Average,18,128927,4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $129 million. That figure was $259 million in TEX's case. Knowles Corporation (NYSE:KN) is the most popular stock in this table. On the other hand Columbia Financial, Inc. (NASDAQ:CLBK) is the least popular one with only 10 bullish hedge fund positions. Terex Corporation (NYSE:TEX) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on TEX, though not to the same extent, as the stock returned 8.5% during the first two months of the fourth quarter and outperformed the market.

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

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