Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: The Timken Company (NYSE:TKR).
Why do we pay any attention at all to hedge fund sentiment? 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 market by 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to take a look at the recent hedge fund action encompassing The Timken Company (NYSE:TKR).
Hedge fund activity in The Timken Company (NYSE:TKR)
At the end of the third quarter, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 32% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in TKR over the last 13 quarters. With hedge funds' capital changing hands, there exists a few notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
The largest stake in The Timken Company (NYSE:TKR) was held by Millennium Management, which reported holding $52.3 million worth of stock at the end of September. It was followed by Adage Capital Management with a $36.5 million position. Other investors bullish on the company included Balyasny Asset Management, AQR Capital Management, and D E Shaw.
With a general bullishness amongst the heavyweights, some big names have jumped into The Timken Company (NYSE:TKR) headfirst. GLG Partners, managed by Noam Gottesman, initiated the most valuable position in The Timken Company (NYSE:TKR). GLG Partners had $5 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also made a $4.7 million investment in the stock during the quarter. The following funds were also among the new TKR investors: Alexander Roepers's Atlantic Investment Management, Bruce Kovner's Caxton Associates LP, and Peter Algert and Kevin Coldiron's Algert Coldiron Investors.
Let's now take a look at hedge fund activity in other stocks similar to The Timken Company (NYSE:TKR). We will take a look at CoreSite Realty Corp (NYSE:COR), Extended Stay America Inc (NYSE:STAY), Home Bancshares, Inc. (Conway, AR) (NASDAQ:HOMB), and Ultragenyx Pharmaceutical Inc (NASDAQ:RARE). This group of stocks' market valuations are similar to TKR's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position COR,12,193588,-2 STAY,30,495106,6 HOMB,14,30391,2 RARE,17,163418,6 Average,18.25,220626,3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $221 million. That figure was $221 million in TKR's case. Extended Stay America Inc (NYSE:STAY) is the most popular stock in this table. On the other hand CoreSite Realty Corp (NYSE:COR) is the least popular one with only 12 bullish hedge fund positions. The Timken Company (NYSE:TKR) 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. In this regard STAY might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.