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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 817 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 Teekay Corporation (NYSE:TK).
Is TK a good stock to buy now? Teekay Corporation (NYSE:TK) was in 8 hedge funds' portfolios at the end of September. The all time high for this statistics is 19. TK investors should be aware of a decrease in hedge fund interest in recent months. There were 14 hedge funds in our database with TK holdings at the end of June. Our calculations also showed that TK isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 66 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Donald Sussman of Paloma Partners
At Insider Monkey we scour multiple sources to uncover 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 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. 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 website. With all of this in mind let's go over the new hedge fund action regarding Teekay Corporation (NYSE:TK).
How are hedge funds trading Teekay Corporation (NYSE:TK)?
At the end of the third quarter, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of -43% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in TK over the last 21 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Renaissance Technologies, holds the number one position in Teekay Corporation (NYSE:TK). Renaissance Technologies has a $4.7 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is Israel Englander of Millennium Management, with a $2.5 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that hold long positions encompass Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, D. E. Shaw's D E Shaw and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Dalton Investments allocated the biggest weight to Teekay Corporation (NYSE:TK), around 0.23% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, designating 0.0047 percent of its 13F equity portfolio to TK.
Judging by the fact that Teekay Corporation (NYSE:TK) has faced declining sentiment from the entirety of the hedge funds we track, it's safe to say that there lies a certain "tier" of hedgies who were dropping their full holdings by the end of the third quarter. Intriguingly, John M. Angelo and Michael L. Gordon's Angelo Gordon & Co sold off the largest stake of the "upper crust" of funds monitored by Insider Monkey, comprising about $2.5 million in stock, and Cliff Asness's AQR Capital Management was right behind this move, as the fund dropped about $1.3 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 6 funds by the end of the third quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Teekay Corporation (NYSE:TK) but similarly valued. These stocks are KalVista Pharmaceuticals, Inc. (NASDAQ:KALV), Genfit SA (NASDAQ:GNFT), Galera Therapeutics, Inc. (NASDAQ:GRTX), Peabody Energy Corporation (NYSE:BTU), South Plains Financial, Inc. (NASDAQ:SPFI), Red Violet, Inc. (NASDAQ:RDVT), and Kezar Life Sciences, Inc. (NASDAQ:KZR). This group of stocks' market caps are similar to TK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KALV,15,66712,-3 GNFT,1,150,-1 GRTX,7,33786,0 BTU,20,99928,-3 SPFI,2,3871,1 RDVT,2,5446,-3 KZR,13,27196,-1 Average,8.6,33870,-1.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.6 hedge funds with bullish positions and the average amount invested in these stocks was $34 million. That figure was $11 million in TK's case. Peabody Energy Corporation (NYSE:BTU) is the most popular stock in this table. On the other hand Genfit SA (NASDAQ:GNFT) is the least popular one with only 1 bullish hedge fund positions. Teekay Corporation (NYSE:TK) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for TK is 30.1. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd and still beat the market by 16 percentage points. A small number of hedge funds were also right about betting on TK as the stock returned 11.2% since the end of the third quarter (through 12/2) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.