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Do Hedge Funds Love Tempur Sealy International Inc. (TPX)?

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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 Tempur Sealy International Inc. (NYSE:TPX), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

Is Tempur Sealy International Inc. (NYSE:TPX) the right pick for your portfolio? Prominent investors were cutting their exposure. The number of long hedge fund bets went down by 2 recently. Tempur Sealy International Inc. (NYSE:TPX) was in 35 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 46. Our calculations also showed that TPX isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 37 hedge funds in our database with TPX holdings at the end of March.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Dmitry Balyasny of Balyasny Asset Managemnet
Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny Asset Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech 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. With all of this in mind let's check out the recent hedge fund action surrounding Tempur Sealy International Inc. (NYSE:TPX).

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

At Q2's end, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the first quarter of 2020. On the other hand, there were a total of 46 hedge funds with a bullish position in TPX a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is TPX A Good Stock To Buy?
Is TPX A Good Stock To Buy?

The largest stake in Tempur Sealy International Inc. (NYSE:TPX) was held by H Partners Management, which reported holding $431.1 million worth of stock at the end of June. It was followed by Eminence Capital with a $195.6 million position. Other investors bullish on the company included Arrowstreet Capital, Scopus Asset Management, and Shellback Capital. In terms of the portfolio weights assigned to each position H Partners Management allocated the biggest weight to Tempur Sealy International Inc. (NYSE:TPX), around 37.37% of its 13F portfolio. Kehrs Ridge Capital is also relatively very bullish on the stock, designating 3.2 percent of its 13F equity portfolio to TPX.

Seeing as Tempur Sealy International Inc. (NYSE:TPX) has faced a decline in interest from the aggregate hedge fund industry, we can see that there was a specific group of fund managers who sold off their entire stakes heading into Q3. Interestingly, Gabriel Plotkin's Melvin Capital Management dropped the largest position of the 750 funds watched by Insider Monkey, comprising close to $90.5 million in stock, and Shashin Shah's Think Investments was right behind this move, as the fund dropped about $23.4 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 2 funds heading into Q3.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Tempur Sealy International Inc. (NYSE:TPX) but similarly valued. These stocks are Anaplan, Inc. (NYSE:PLAN), PVH Corp (NYSE:PVH), Lattice Semiconductor Corporation (NASDAQ:LSCC), LG Display Co Ltd. (NYSE:LPL), Churchill Downs Incorporated (NASDAQ:CHDN), Rexford Industrial Realty Inc (NYSE:REXR), and AutoNation, Inc. (NYSE:AN). All of these stocks' market caps match TPX's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PLAN,52,2141802,-3 PVH,28,1759709,-6 LSCC,24,306527,0 LPL,7,27354,-2 CHDN,35,694267,16 REXR,21,128403,8 AN,24,610690,0 Average,27.3,809822,1.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.3 hedge funds with bullish positions and the average amount invested in these stocks was $810 million. That figure was $1097 million in TPX's case. Anaplan, Inc. (NYSE:PLAN) is the most popular stock in this table. On the other hand LG Display Co Ltd. (NYSE:LPL) is the least popular one with only 7 bullish hedge fund positions. Tempur Sealy International Inc. (NYSE:TPX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TPX is 56.9. 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. 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 21.8% in 2021 through October 11th and still beat the market by 4.4 percentage points. Hedge funds were also right about betting on TPX as the stock returned 14.6% since the end of Q2 (through 10/11) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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