The elite funds run by legendary investors such as David Tepper and Dan Loeb make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don't follow. Because of their pay structures, they have strong incentives to do the research necessary to beat the market. That's why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at Textron Inc. (NYSE:TXT) from the perspective of those elite funds.
Textron Inc. (NYSE:TXT) shareholders have witnessed a decrease in activity from the world's largest hedge funds of late. TXT was in 24 hedge funds' portfolios at the end of the first quarter of 2019. There were 28 hedge funds in our database with TXT holdings at the end of the previous quarter. Our calculations also showed that TXT isn't among the 30 most popular stocks among hedge funds.
To the average investor there are a lot of metrics stock market investors use to grade stocks. A couple of the most under-the-radar metrics are hedge fund and insider trading moves. We have shown that, historically, those who follow the best picks of the best money managers can trounce their index-focused peers by a superb amount (see the details here).
We're going to analyze the new hedge fund action encompassing Textron Inc. (NYSE:TXT).
Hedge fund activity in Textron Inc. (NYSE:TXT)
At the end of the first quarter, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from one quarter earlier. By comparison, 21 hedge funds held shares or bullish call options in TXT a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
Among these funds, AQR Capital Management held the most valuable stake in Textron Inc. (NYSE:TXT), which was worth $143.4 million at the end of the first quarter. On the second spot was GAMCO Investors which amassed $125 million worth of shares. Moreover, Arrowstreet Capital, D E Shaw, and Millennium Management were also bullish on Textron Inc. (NYSE:TXT), allocating a large percentage of their portfolios to this stock.
Because Textron Inc. (NYSE:TXT) has faced declining sentiment from the smart money, we can see that there lies a certain "tier" of hedge funds who sold off their positions entirely last quarter. Intriguingly, John A. Levin's Levin Capital Strategies dumped the biggest investment of all the hedgies watched by Insider Monkey, worth about $66.4 million in stock. Dmitry Balyasny's fund, Balyasny Asset Management, also said goodbye to its stock, about $2 million worth. These moves are interesting, as total hedge fund interest fell by 4 funds last quarter.
Let's now take a look at hedge fund activity in other stocks similar to Textron Inc. (NYSE:TXT). These stocks are Tractor Supply Company (NASDAQ:TSCO), Cna Financial Corporation (NYSE:CNA), Seattle Genetics, Inc. (NASDAQ:SGEN), and Elanco Animal Health Incorporated (NYSE:ELAN). This group of stocks' market values match TXT's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TSCO,33,579597,-8 CNA,14,76729,1 SGEN,19,4016031,3 ELAN,33,1055959,15 Average,24.75,1432079,2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $1432 million. That figure was $666 million in TXT's case. Tractor Supply Company (NASDAQ:TSCO) is the most popular stock in this table. On the other hand Cna Financial Corporation (NYSE:CNA) is the least popular one with only 14 bullish hedge fund positions. Textron Inc. (NYSE:TXT) 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately TXT wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); TXT investors were disappointed as the stock returned -8.9% 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.