We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Teradata Corporation (NYSE:TDC).
Teradata Corporation (NYSE:TDC) investors should be aware of an increase in support from the world's most elite money managers recently. Our calculations also showed that TDC isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_255014" align="aligncenter" width="399"] Clint Carlson of Carlson Capital[/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 let's take a look at the key hedge fund action regarding Teradata Corporation (NYSE:TDC).
What does smart money think about Teradata Corporation (NYSE:TDC)?
At the end of the fourth quarter, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of 22% from one quarter earlier. On the other hand, there were a total of 21 hedge funds with a bullish position in TDC a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Teradata Corporation (NYSE:TDC) was held by Renaissance Technologies, which reported holding $67.7 million worth of stock at the end of September. It was followed by Lynrock Lake with a $29 million position. Other investors bullish on the company included Balyasny Asset Management, Alyeska Investment Group, and Balyasny Asset Management. In terms of the portfolio weights assigned to each position Lynrock Lake allocated the biggest weight to Teradata Corporation (NYSE:TDC), around 2.96% of its 13F portfolio. Clearline Capital is also relatively very bullish on the stock, dishing out 2.03 percent of its 13F equity portfolio to TDC.
As one would reasonably expect, key money managers have been driving this bullishness. Alyeska Investment Group, managed by Anand Parekh, established the biggest position in Teradata Corporation (NYSE:TDC). Alyeska Investment Group had $17.4 million invested in the company at the end of the quarter. Clint Carlson's Carlson Capital also made a $12.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Michael Rockefeller and Karl Kroeker's Woodline Partners, Marc Majzner's Clearline Capital, and Ali Motamed's Invenomic Capital Management.
Let's check out hedge fund activity in other stocks similar to Teradata Corporation (NYSE:TDC). These stocks are Colliers International Group Inc (NASDAQ:CIGI), EnLink Midstream LLC (NYSE:ENLC), Agree Realty Corporation (NYSE:ADC), and Cohen & Steers, Inc. (NYSE:CNS). This group of stocks' market valuations match TDC's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CIGI,13,756614,2 ENLC,11,27563,-1 ADC,18,228867,7 CNS,16,94094,0 Average,14.5,276785,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $277 million. That figure was $241 million in TDC's case. Agree Realty Corporation (NYSE:ADC) is the most popular stock in this table. On the other hand EnLink Midstream LLC (NYSE:ENLC) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Teradata Corporation (NYSE:TDC) is more popular among hedge funds. 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 17.4% in 2020 through March 25th and still beat the market by 5.5 percentage points. Unfortunately TDC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on TDC were disappointed as the stock returned -25.7% during the first two and a half months of 2020 (through March 25th) 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. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.