How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding TransUnion (NYSE:TRU) and determine whether hedge funds had an edge regarding this stock.
Is TransUnion (NYSE:TRU) a healthy stock for your portfolio? The best stock pickers were betting on the stock. The number of bullish hedge fund positions rose by 3 recently. TransUnion (NYSE:TRU) was in 47 hedge funds' portfolios at the end of June. The all time high for this statistics is 44. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that TRU isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Sander Gerber of Hudson Bay Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind let's go over the key hedge fund action encompassing TransUnion (NYSE:TRU).
What does smart money think about TransUnion (NYSE:TRU)?
At second quarter's end, a total of 47 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from one quarter earlier. On the other hand, there were a total of 30 hedge funds with a bullish position in TRU a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
The largest stake in TransUnion (NYSE:TRU) was held by Citadel Investment Group, which reported holding $295.4 million worth of stock at the end of September. It was followed by Select Equity Group with a $284 million position. Other investors bullish on the company included Marshall Wace LLP, Palestra Capital Management, and Farallon Capital. In terms of the portfolio weights assigned to each position Lansing Management allocated the biggest weight to TransUnion (NYSE:TRU), around 15.64% of its 13F portfolio. Bishop Rock Capital is also relatively very bullish on the stock, dishing out 3.96 percent of its 13F equity portfolio to TRU.
Consequently, key money managers have been driving this bullishness. Select Equity Group, managed by Robert Joseph Caruso, created the most valuable position in TransUnion (NYSE:TRU). Select Equity Group had $284 million invested in the company at the end of the quarter. Andrew Immerman and Jeremy Schiffman's Palestra Capital Management also made a $105.3 million investment in the stock during the quarter. The following funds were also among the new TRU investors: James Parsons's Junto Capital Management, Robert Pohly's Samlyn Capital, and Sander Gerber's Hudson Bay Capital Management.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as TransUnion (NYSE:TRU) but similarly valued. These stocks are Northern Trust Corporation (NASDAQ:NTRS), Restaurant Brands International Inc (NYSE:QSR), Yandex NV (NASDAQ:YNDX), Peloton Interactive, Inc. (NASDAQ:PTON), CGI Inc. (NYSE:GIB), Fox Corporation (NASDAQ:FOX), and Fox Corporation (NASDAQ:FOXA). This group of stocks' market valuations match TRU's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NTRS,35,449745,8 QSR,44,2868475,3 YNDX,44,1403652,9 PTON,50,2109831,14 GIB,19,259686,1 FOX,20,566122,-2 FOXA,35,1611691,-3 Average,35.3,1324172,4.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 35.3 hedge funds with bullish positions and the average amount invested in these stocks was $1324 million. That figure was $1629 million in TRU's case. Peloton Interactive, Inc. (NASDAQ:PTON) is the most popular stock in this table. On the other hand CGI Inc. (NYSE:GIB) is the least popular one with only 19 bullish hedge fund positions. TransUnion (NYSE:TRU) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TRU is 83.2. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately TRU wasn't nearly as popular as these 10 stocks and hedge funds that were betting on TRU were disappointed as the stock returned -0.3% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Get real-time email alerts: Follow Transunion (NYSE:TRU)
Disclosure: None. This article was originally published at Insider Monkey.