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 Team, Inc. (NYSE:TISI) and determine whether hedge funds had an edge regarding this stock.
Team, Inc. (NYSE:TISI) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 11 hedge funds' portfolios at the end of the first quarter of 2020. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Silicom Ltd. (NASDAQ:SILC), Funko, Inc. (NASDAQ:FNKO), and Weyco Group, Inc. (NASDAQ:WEYS) to gather more data points. Our calculations also showed that TISI isn't among the 30 most popular stocks among hedge funds (click for Q1 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.
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 58 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 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_731890" align="aligncenter" width="400"] John Rogers of Ariel Investments[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to view the new hedge fund action surrounding Team, Inc. (NYSE:TISI).
What does smart money think about Team, Inc. (NYSE:TISI)?
At the end of the first quarter, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards TISI over the last 18 quarters. With the smart money's sentiment swirling, there exists a select group of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
The largest stake in Team, Inc. (NYSE:TISI) was held by GAMCO Investors, which reported holding $11.3 million worth of stock at the end of September. It was followed by Ariel Investments with a $9.8 million position. Other investors bullish on the company included Royce & Associates, Arrowstreet Capital, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Ariel Investments allocated the biggest weight to Team, Inc. (NYSE:TISI), around 0.17% of its 13F portfolio. GAMCO Investors is also relatively very bullish on the stock, earmarking 0.13 percent of its 13F equity portfolio to TISI.
Because Team, Inc. (NYSE:TISI) has witnessed declining sentiment from hedge fund managers, logic holds that there lies a certain "tier" of hedge funds who sold off their full holdings last quarter. It's worth mentioning that Peter Schliemann's Rutabaga Capital Management dumped the biggest position of the 750 funds monitored by Insider Monkey, worth close to $4 million in stock, and Donald Sussman's Paloma Partners was right behind this move, as the fund said goodbye to about $0.3 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks similar to Team, Inc. (NYSE:TISI). We will take a look at Silicom Ltd. (NASDAQ:SILC), Funko, Inc. (NASDAQ:FNKO), Weyco Group, Inc. (NASDAQ:WEYS), and comScore, Inc. (NASDAQ:SCOR). All of these stocks' market caps resemble TISI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SILC,5,6841,0 FNKO,12,11488,-2 WEYS,4,4976,1 SCOR,18,60183,-1 Average,9.75,20872,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $21 million. That figure was $27 million in TISI's case. comScore, Inc. (NASDAQ:SCOR) is the most popular stock in this table. On the other hand Weyco Group, Inc. (NASDAQ:WEYS) is the least popular one with only 4 bullish hedge fund positions. Team, Inc. (NYSE:TISI) is not the most popular stock in this group but hedge fund interest is still above average. 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately TISI wasn't nearly as popular as these 10 stocks and hedge funds that were betting on TISI were disappointed as the stock returned -14.3% 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.
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Disclosure: None. This article was originally published at Insider Monkey.