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 Teradata Corporation (NYSE:TDC).
Teradata Corporation (NYSE:TDC) investors should pay attention to a decrease in support from the world's most elite money managers in recent months. Our calculations also showed that TDC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to 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 has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_26340" align="aligncenter" width="594"] Ken Griffin of Citadel Investment Group[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. Let's take a glance at the key hedge fund action regarding Teradata Corporation (NYSE:TDC).
Hedge fund activity in Teradata Corporation (NYSE:TDC)
At the end of the third quarter, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the previous quarter. The graph below displays the number of hedge funds with bullish position in TDC over the last 17 quarters. With hedge funds' capital changing hands, there exists an "upper tier" of key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
The largest stake in Teradata Corporation (NYSE:TDC) was held by Renaissance Technologies, which reported holding $96.5 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $46.2 million position. Other investors bullish on the company included D E Shaw, Millennium Management, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Intrepid Capital Management allocated the biggest weight to Teradata Corporation (NYSE:TDC), around 2.9% of its 13F portfolio. Lynrock Lake is also relatively very bullish on the stock, earmarking 1.21 percent of its 13F equity portfolio to TDC.
Judging by the fact that Teradata Corporation (NYSE:TDC) has faced declining sentiment from the entirety of the hedge funds we track, it's safe to say that there is a sect of fund managers that slashed their positions entirely last quarter. Intriguingly, Paul Marshall and Ian Wace's Marshall Wace said goodbye to the largest stake of the 750 funds tracked by Insider Monkey, totaling close to $1.8 million in stock. Benjamin A. Smith's fund, Laurion Capital Management, also cut its stock, about $1.7 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 2 funds last quarter.
Let's now take a look at hedge fund activity in other stocks similar to Teradata Corporation (NYSE:TDC). We will take a look at BJ's Wholesale Club Holdings, Inc. (NYSE:BJ), Graham Holdings Co (NYSE:GHC), Clearway Energy, Inc. (NYSE:CWEN), and Bank OZK (NASDAQ:OZK). All of these stocks' market caps resemble TDC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BJ,23,275625,-10 GHC,17,551698,2 CWEN,20,182276,1 OZK,19,282599,-2 Average,19.75,323050,-2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $323 million. That figure was $247 million in TDC's case. BJ's Wholesale Club Holdings, Inc. (NYSE:BJ) is the most popular stock in this table. On the other hand Graham Holdings Co (NYSE:GHC) is the least popular one with only 17 bullish hedge fund positions. Teradata Corporation (NYSE:TDC) 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 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 -14.3% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.