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Was The Smart Money Right About Texas Instruments (TXN)?

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·6 min read
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At Insider Monkey, we pore over the filings of nearly 887 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of December 31st. In this article, we will use that wealth of knowledge to determine whether or not Texas Instruments Incorporated (NASDAQ:TXN) makes for a good investment right now.

Is Texas Instruments Incorporated (NASDAQ:TXN) a healthy stock for your portfolio? The smart money was taking a bullish view. The number of bullish hedge fund positions moved up by 1 in recent months. Texas Instruments Incorporated (NASDAQ:TXN) was in 56 hedge funds' portfolios at the end of December. The all time high for this statistic is 60. Our calculations also showed that TXN isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. 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 124 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.

David Blood
David Blood

David Blood of Generation Investment Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell 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. Now let's take a peek at the new hedge fund action surrounding Texas Instruments Incorporated (NASDAQ:TXN).

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

Heading into the first quarter of 2021, a total of 56 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 2% from the third quarter of 2020. On the other hand, there were a total of 50 hedge funds with a bullish position in TXN 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.

More specifically, Generation Investment Management was the largest shareholder of Texas Instruments Incorporated (NASDAQ:TXN), with a stake worth $514.8 million reported as of the end of December. Trailing Generation Investment Management was AQR Capital Management, which amassed a stake valued at $453.5 million. Diamond Hill Capital, Millennium Management, and Adage Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Bristol Gate Capital Partners allocated the biggest weight to Texas Instruments Incorporated (NASDAQ:TXN), around 4.84% of its 13F portfolio. Heathbridge Capital Management is also relatively very bullish on the stock, designating 4.67 percent of its 13F equity portfolio to TXN.

Consequently, key money managers were leading the bulls' herd. Hudson Bay Capital Management, managed by Sander Gerber, initiated the largest position in Texas Instruments Incorporated (NASDAQ:TXN). Hudson Bay Capital Management had $49.2 million invested in the company at the end of the quarter. George Soros's Soros Fund Management also made a $10.6 million investment in the stock during the quarter. The other funds with brand new TXN positions are Mark R. Freeman's Socorro Asset Management, Andrew Byington's Appian Way Asset Management, and Greg Poole's Echo Street Capital Management.

Let's go over hedge fund activity in other stocks similar to Texas Instruments Incorporated (NASDAQ:TXN). We will take a look at Honeywell International Inc. (NYSE:HON), United Parcel Service, Inc. (NYSE:UPS), Union Pacific Corporation (NYSE:UNP), Bristol Myers Squibb Company (NYSE:BMY), Linde plc (NYSE:LIN), Shopify Inc (NYSE:SHOP), and Anheuser-Busch InBev SA/NV (NYSE:BUD). This group of stocks' market caps match TXN's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HON,45,983560,4 UPS,48,1253721,-9 UNP,68,3539131,-6 BMY,131,6088294,7 LIN,50,3950824,-10 SHOP,90,8723023,9 BUD,18,1294786,0 Average,64.3,3690477,-0.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 64.3 hedge funds with bullish positions and the average amount invested in these stocks was $3690 million. That figure was $2497 million in TXN's case. Bristol Myers Squibb Company (NYSE:BMY) is the most popular stock in this table. On the other hand Anheuser-Busch InBev SA/NV (NYSE:BUD) is the least popular one with only 18 bullish hedge fund positions. Texas Instruments Incorporated (NASDAQ:TXN) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for TXN is 50.8. 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 negative signal and 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 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and surpassed the market again by 1.6 percentage points. Unfortunately TXN wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); TXN investors were disappointed as the stock returned 11.3% since the end of December (through 4/30) 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 most of these stocks already outperformed the market in 2020.

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

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