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Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Teradyne, Inc. (NYSE:TER).
Hedge fund interest in Teradyne, Inc. (NYSE:TER) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that TER isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings). At the end of this article we will also compare TER to other stocks including Hartford Financial Services Group Inc (NYSE:HIG), DISH Network Corp. (NASDAQ:DISH), and Qorvo Inc (NASDAQ:QRVO) to get a better sense of its popularity.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
David E. Shaw of D.E. Shaw
At Insider Monkey, we scour multiple sources to uncover 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 EV 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. Keeping this in mind let's take a look at the key hedge fund action encompassing Teradyne, Inc. (NYSE:TER).
Do Hedge Funds Think TER Is A Good Stock To Buy Now?
At second quarter's end, a total of 44 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in TER over the last 24 quarters. With the smart money's capital changing hands, there exists an "upper tier" of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
More specifically, Alkeon Capital Management was the largest shareholder of Teradyne, Inc. (NYSE:TER), with a stake worth $533.7 million reported as of the end of June. Trailing Alkeon Capital Management was ARK Investment Management, which amassed a stake valued at $373 million. Millennium Management, D E Shaw, and Woodline Partners 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 Newbrook Capital Advisors allocated the biggest weight to Teradyne, Inc. (NYSE:TER), around 2.91% of its 13F portfolio. Force Hill Capital Management is also relatively very bullish on the stock, dishing out 2.71 percent of its 13F equity portfolio to TER.
Since Teradyne, Inc. (NYSE:TER) has experienced a decline in interest from hedge fund managers, it's safe to say that there lies a certain "tier" of money managers who sold off their entire stakes in the second quarter. It's worth mentioning that Xiuping Li's Opti Capital Management dumped the biggest investment of the 750 funds watched by Insider Monkey, totaling close to $89.3 million in stock. Renaissance Technologies, also dumped its stock, about $39.5 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Teradyne, Inc. (NYSE:TER) but similarly valued. These stocks are Hartford Financial Services Group Inc (NYSE:HIG), DISH Network Corp. (NASDAQ:DISH), Qorvo Inc (NASDAQ:QRVO), Cheniere Energy, Inc. (NYSE:LNG), Martin Marietta Materials, Inc. (NYSE:MLM), Edison International (NYSE:EIX), and Extra Space Storage, Inc. (NYSE:EXR). All of these stocks' market caps match TER's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HIG,43,1468819,-14 DISH,51,2543355,0 QRVO,40,2300268,-1 LNG,49,2944377,9 MLM,34,2014762,-7 EIX,18,1386816,-17 EXR,21,176013,-7 Average,36.6,1833487,-5.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 36.6 hedge funds with bullish positions and the average amount invested in these stocks was $1833 million. That figure was $1687 million in TER's case. DISH Network Corp. (NASDAQ:DISH) is the most popular stock in this table. On the other hand Edison International (NYSE:EIX) is the least popular one with only 18 bullish hedge fund positions. Teradyne, Inc. (NYSE:TER) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TER is 72.5. 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 positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. 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 22.9% in 2021 through October 1st and beat the market again by 5.6 percentage points. Unfortunately TER wasn't nearly as popular as these 5 stocks and hedge funds that were betting on TER were disappointed as the stock returned -18.2% since the end of June (through 10/1) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.