Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. At Insider Monkey, we pore over the filings of nearly 835 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not Teledyne Technologies Incorporated (NYSE:TDY) makes for a good investment right now.
Teledyne Technologies Incorporated (NYSE:TDY) shareholders have witnessed a decrease in hedge fund sentiment recently. TDY was in 24 hedge funds' portfolios at the end of December. There were 31 hedge funds in our database with TDY holdings at the end of the previous quarter. Our calculations also showed that TDY isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Today there are plenty of indicators market participants have at their disposal to appraise stocks. A duo of the most underrated indicators are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the best picks of the top hedge fund managers can outperform their index-focused peers by a significant amount (see the details here).
[caption id="attachment_30621" align="aligncenter" width="400"] Cliff Asness of AQR Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind we're going to take a gander at the key hedge fund action encompassing Teledyne Technologies Incorporated (NYSE:TDY).
What does smart money think about Teledyne Technologies Incorporated (NYSE:TDY)?
At Q4's end, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -23% from one quarter earlier. By comparison, 20 hedge funds held shares or bullish call options in TDY a year ago. With hedge funds' capital changing hands, there exists an "upper tier" of key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
More specifically, AQR Capital Management was the largest shareholder of Teledyne Technologies Incorporated (NYSE:TDY), with a stake worth $160 million reported as of the end of September. Trailing AQR Capital Management was Fisher Asset Management, which amassed a stake valued at $103.2 million. Cardinal Capital, East Side Capital (RR Partners), and Scopus 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 East Side Capital (RR Partners) allocated the biggest weight to Teledyne Technologies Incorporated (NYSE:TDY), around 6.05% of its 13F portfolio. Cardinal Capital is also relatively very bullish on the stock, setting aside 2.3 percent of its 13F equity portfolio to TDY.
Judging by the fact that Teledyne Technologies Incorporated (NYSE:TDY) has experienced declining sentiment from hedge fund managers, we can see that there is a sect of hedge funds who were dropping their positions entirely heading into Q4. It's worth mentioning that Michael Gelband's ExodusPoint Capital sold off the largest stake of the "upper crust" of funds watched by Insider Monkey, valued at close to $23.6 million in stock. Peter Muller's fund, PDT Partners, also said goodbye to its stock, about $15.9 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 7 funds heading into Q4.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Teledyne Technologies Incorporated (NYSE:TDY) but similarly valued. We will take a look at Centrais Eletricas Brasileiras SA (NYSE:EBR), DENTSPLY SIRONA Inc. (NASDAQ:XRAY), Lamb Weston Holdings, Inc. (NYSE:LW), and Universal Health Services, Inc. (NYSE:UHS). All of these stocks' market caps resemble TDY's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EBR,7,21678,2 XRAY,28,1468190,-2 LW,32,381958,-3 UHS,31,483243,3 Average,24.5,588767,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $589 million. That figure was $547 million in TDY's case. Lamb Weston Holdings, Inc. (NYSE:LW) is the most popular stock in this table. On the other hand Centrais Eletricas Brasileiras SA (NYSE:EBR) is the least popular one with only 7 bullish hedge fund positions. Teledyne Technologies Incorporated (NYSE:TDY) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately TDY wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); TDY investors were disappointed as the stock returned -26.5% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.