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Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don't make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards The TJX Companies, Inc. (NYSE:TJX) to find out whether there were any major changes in hedge funds' views.
Is TJX stock a buy or sell? The TJX Companies, Inc. (NYSE:TJX) was in 68 hedge funds' portfolios at the end of December. The all time high for this statistic is 78. TJX shareholders have witnessed a decrease in support from the world's most elite money managers in recent months. There were 78 hedge funds in our database with TJX positions at the end of the third quarter. Our calculations also showed that TJX isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 124 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ric Dillon of Diamond Hill Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 best cheap stocks to buy now 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 (or at the end of this article). Now we're going to review the recent hedge fund action surrounding The TJX Companies, Inc. (NYSE:TJX).
Do Hedge Funds Think TJX Is A Good Stock To Buy Now?
At the end of December, a total of 68 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the third quarter of 2020. By comparison, 57 hedge funds held shares or bullish call options in TJX a year ago. With hedgies' capital changing hands, there exists an "upper tier" of key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
Among these funds, Alkeon Capital Management held the most valuable stake in The TJX Companies, Inc. (NYSE:TJX), which was worth $416.5 million at the end of the fourth quarter. On the second spot was Diamond Hill Capital which amassed $367.2 million worth of shares. BlueSpruce Investments, D E Shaw, and Broad Bay Capital 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 Broad Bay Capital allocated the biggest weight to The TJX Companies, Inc. (NYSE:TJX), around 13.51% of its 13F portfolio. Rip Road Capital is also relatively very bullish on the stock, designating 7.13 percent of its 13F equity portfolio to TJX.
Seeing as The TJX Companies, Inc. (NYSE:TJX) has faced a decline in interest from the aggregate hedge fund industry, logic holds that there exists a select few money managers who sold off their full holdings in the fourth quarter. Intriguingly, Gabriel Plotkin's Melvin Capital Management sold off the largest investment of the "upper crust" of funds tracked by Insider Monkey, totaling close to $256 million in stock. Aaron Cowen's fund, Suvretta Capital Management, also dumped its stock, about $49.7 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 10 funds in the fourth quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as The TJX Companies, Inc. (NYSE:TJX) but similarly valued. We will take a look at Anthem Inc (NYSE:ANTM), Snowflake Inc (NYSE:SNOW), S&P Global Inc. (NYSE:SPGI), Applied Materials, Inc. (NASDAQ:AMAT), Zoetis Inc (NYSE:ZTS), Canadian National Railway Company (NYSE:CNI), and Altria Group Inc (NYSE:MO). All of these stocks' market caps are similar to TJX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ANTM,70,5186728,5 SNOW,54,7723382,-5 SPGI,75,3807859,4 AMAT,61,3632227,2 ZTS,61,2389697,3 CNI,31,2188963,5 MO,37,1082661,-10 Average,55.6,3715931,0.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 55.6 hedge funds with bullish positions and the average amount invested in these stocks was $3716 million. That figure was $2297 million in TJX's case. S&P Global Inc. (NYSE:SPGI) is the most popular stock in this table. On the other hand Canadian National Railway Company (NYSE:CNI) is the least popular one with only 31 bullish hedge fund positions. The TJX Companies, Inc. (NYSE:TJX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TJX is 63.2. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 7% in 2021 through March 12th and beat the market again by 1.6 percentage points. Unfortunately TJX wasn't nearly as popular as these 30 stocks and hedge funds that were betting on TJX were disappointed as the stock returned -1.8% since the end of December (through 3/12) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 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.