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Teradata Corporation (TDC): Hedge Funds In Wait-and-See Mode

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Is Teradata Corporation (NYSE:TDC) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Teradata Corporation (NYSE:TDC) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 26 hedge funds' portfolios at the end of June. Our calculations also showed that TDC isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings). 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 Bank OZK (NASDAQ:OZK), Cousins Properties Incorporated (NYSE:CUZ), and Quidel Corporation (NASDAQ:QDEL) to gather more data points.

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' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 79 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

John Overdeck of Two Sigma
John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

Now let's go over the new hedge fund action encompassing Teradata Corporation (NYSE:TDC).

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

At second quarter's end, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 31 hedge funds held shares or bullish call options in TDC a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey's hedge fund database, Cynthia Paul's Lynrock Lake has the most valuable position in Teradata Corporation (NYSE:TDC), worth close to $242.3 million, amounting to 16.7% of its total 13F portfolio. The second most bullish fund manager is Empyrean Capital Partners, led by Michael A. Price and Amos Meron, holding a $70.3 million position; the fund has 1.6% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions encompass Renaissance Technologies, John Overdeck and David Siegel's Two Sigma Advisors and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Lynrock Lake allocated the biggest weight to Teradata Corporation (NYSE:TDC), around 16.68% of its 13F portfolio. Andar Capital is also relatively very bullish on the stock, earmarking 15.81 percent of its 13F equity portfolio to TDC.

Since Teradata Corporation (NYSE:TDC) has faced falling interest from the aggregate hedge fund industry, we can see that there is a sect of funds that decided to sell off their entire stakes by the end of the second quarter. At the top of the heap, Anand Parekh's Alyeska Investment Group dropped the biggest stake of the "upper crust" of funds monitored by Insider Monkey, worth an estimated $38.5 million in stock, and Michael Gelband's ExodusPoint Capital was right behind this move, as the fund dropped about $2.1 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Teradata Corporation (NYSE:TDC) but similarly valued. We will take a look at Bank OZK (NASDAQ:OZK), Cousins Properties Incorporated (NYSE:CUZ), Quidel Corporation (NASDAQ:QDEL), Valley National Bancorp (NASDAQ:VLY), Avis Budget Group Inc. (NASDAQ:CAR), Open Lending Corporation (NASDAQ:LPRO), and Regal Beloit Corporation (NYSE:RBC). This group of stocks' market valuations are similar to TDC's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OZK,19,256386,-6 CUZ,17,156078,1 QDEL,19,219103,-9 VLY,13,90860,-4 CAR,27,1709974,6 LPRO,24,433663,-9 RBC,31,391844,1 Average,21.4,465415,-2.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.4 hedge funds with bullish positions and the average amount invested in these stocks was $465 million. That figure was $505 million in TDC's case. Regal Beloit Corporation (NYSE:RBC) is the most popular stock in this table. On the other hand Valley National Bancorp (NASDAQ:VLY) is the least popular one with only 13 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. Our overall hedge fund sentiment score for TDC is 64.7. 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. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24.9% in 2021 through October 15th and still beat the market by 4.5 percentage points. Hedge funds were also right about betting on TDC as the stock returned 15% since the end of Q2 (through 10/15) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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