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 Thor Industries, Inc. (NYSE:THO) and determine whether hedge funds had an edge regarding this stock.
Is Thor Industries, Inc. (NYSE:THO) worth your attention right now? Prominent investors were in a bullish mood. The number of long hedge fund bets inched up by 19 in recent months. Thor Industries, Inc. (NYSE:THO) was in 39 hedge funds' portfolios at the end of June. The all time high for this statistics is 42. Our calculations also showed that THO 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). There were 20 hedge funds in our database with THO holdings at the end of March. Video: Watch our video about the top 5 most popular hedge fund stocks.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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.
David E. Shaw of D.E. Shaw
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, 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. 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. 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. With all of this in mind we're going to take a glance at the fresh hedge fund action regarding Thor Industries, Inc. (NYSE:THO).
How are hedge funds trading Thor Industries, Inc. (NYSE:THO)?
At the end of June, a total of 39 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 95% from the previous quarter. The graph below displays the number of hedge funds with bullish position in THO over the last 20 quarters. With hedgies' capital changing hands, there exists a few key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Scopus Asset Management, managed by Alexander Mitchell, holds the most valuable position in Thor Industries, Inc. (NYSE:THO). Scopus Asset Management has a $49.3 million position in the stock, comprising 1.4% of its 13F portfolio. The second most bullish fund manager is Marshall Wace LLP, led by Paul Marshall and Ian Wace, holding a $44.8 million position; 0.3% of its 13F portfolio is allocated to the stock. Remaining members of the smart money with similar optimism include Ken Griffin's Citadel Investment Group, Ken Heebner's Capital Growth Management and Brad Farber's Atika Capital. In terms of the portfolio weights assigned to each position Value Holdings LP allocated the biggest weight to Thor Industries, Inc. (NYSE:THO), around 7.32% of its 13F portfolio. Capital Growth Management is also relatively very bullish on the stock, setting aside 3.34 percent of its 13F equity portfolio to THO.
With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Scopus Asset Management, managed by Alexander Mitchell, created the largest position in Thor Industries, Inc. (NYSE:THO). Scopus Asset Management had $49.3 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also initiated a $44.8 million position during the quarter. The other funds with brand new THO positions are Ken Heebner's Capital Growth Management, D. E. Shaw's D E Shaw, and Richard S. Meisenberg's ACK Asset Management.
Let's also examine hedge fund activity in other stocks similar to Thor Industries, Inc. (NYSE:THO). These stocks are Berry Global Group Inc (NYSE:BERY), Axon Enterprise, Inc. (NASDAQ:AAXN), Farfetch Limited (NYSE:FTCH), Donaldson Company, Inc. (NYSE:DCI), Sensata Technologies Holding plc (NYSE:ST), Santander Consumer USA Holdings Inc (NYSE:SC), and Bunge Limited (NYSE:BG). All of these stocks' market caps are closest to THO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BERY,40,1455029,6 AAXN,39,609333,13 FTCH,37,837456,15 DCI,27,226099,7 ST,33,1073165,7 SC,20,561451,0 BG,37,620306,-2 Average,33.3,768977,6.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.3 hedge funds with bullish positions and the average amount invested in these stocks was $769 million. That figure was $302 million in THO's case. Berry Global Group Inc (NYSE:BERY) is the most popular stock in this table. On the other hand Santander Consumer USA Holdings Inc (NYSE:SC) is the least popular one with only 20 bullish hedge fund positions. Thor Industries, Inc. (NYSE:THO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for THO is 85.4. 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 THO wasn't nearly as popular as these 10 stocks and hedge funds that were betting on THO were disappointed as the stock returned -11.4% 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.
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Disclosure: None. This article was originally published at Insider Monkey.