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Is TransDigm (TDG) Stock A Buy or Sell?

·5 min read

We at Insider Monkey have gone over 887 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds' and investors' portfolio positions as of December 31st. In this article, we look at what those funds think of TransDigm Group Incorporated (NYSE:TDG) based on that data.

Is TDG stock a buy or sell? TransDigm Group Incorporated (NYSE:TDG) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 64 hedge funds' portfolios at the end of the fourth quarter of 2020. Our calculations also showed that TDG isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings). At the end of this article we will also compare TDG to other stocks including Cummins Inc. (NYSE:CMI), Paychex, Inc. (NASDAQ:PAYX), and STMicroelectronics N.V. (NYSE:STM) to get a better sense of its popularity.

In today’s marketplace there are dozens of gauges stock traders use to size up their holdings. Two of the most useful gauges are hedge fund and insider trading interest. Our researchers have shown that, historically, those who follow the best picks of the elite hedge fund managers can outpace their index-focused peers by a very impressive margin (see the details here).

Chase Coleman Tiger Global Management
Chase Coleman Tiger Global Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. Recently Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 best biotech stocks to invest in to pick the next stock 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 take a look at the latest hedge fund action regarding TransDigm Group Incorporated (NYSE:TDG).

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

Heading into the first quarter of 2021, a total of 64 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the third quarter of 2020. Below, you can check out the change in hedge fund sentiment towards TDG over the last 22 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

Is TDG A Good Stock To Buy?
Is TDG A Good Stock To Buy?

The largest stake in TransDigm Group Incorporated (NYSE:TDG) was held by Tiger Global Management LLC, which reported holding $1087.5 million worth of stock at the end of December. It was followed by Stockbridge Partners with a $962 million position. Other investors bullish on the company included Matrix Capital Management, AltaRock Partners, and Windacre Partnership. In terms of the portfolio weights assigned to each position AltaRock Partners allocated the biggest weight to TransDigm Group Incorporated (NYSE:TDG), around 26.6% of its 13F portfolio. Stockbridge Partners is also relatively very bullish on the stock, setting aside 22.64 percent of its 13F equity portfolio to TDG.

Since TransDigm Group Incorporated (NYSE:TDG) has faced a decline in interest from hedge fund managers, we can see that there were a few fund managers that decided to sell off their positions entirely in the fourth quarter. It's worth mentioning that Lone Pine Capital cut the biggest stake of all the hedgies monitored by Insider Monkey, comprising about $358.4 million in stock. Ross Turner's fund, Pelham Capital, also sold off its stock, about $38 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's go over hedge fund activity in other stocks similar to TransDigm Group Incorporated (NYSE:TDG). These stocks are Cummins Inc. (NYSE:CMI), Paychex, Inc. (NASDAQ:PAYX), STMicroelectronics N.V. (NYSE:STM), CRH PLC (NYSE:CRH), The Allstate Corporation (NYSE:ALL), V.F. Corporation (NYSE:VFC), and Okta, Inc. (NASDAQ:OKTA). All of these stocks' market caps are closest to TDG's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CMI,45,828914,-4 PAYX,32,910613,4 STM,17,142352,-4 CRH,7,100951,0 ALL,38,838274,0 VFC,31,760265,9 OKTA,61,2308732,10 Average,33,841443,2.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $841 million. That figure was $6891 million in TDG's case. Okta, Inc. (NASDAQ:OKTA) is the most popular stock in this table. On the other hand CRH PLC (NYSE:CRH) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks TransDigm Group Incorporated (NYSE:TDG) is more popular among hedge funds. Our overall hedge fund sentiment score for TDG is 85. 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 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 5.3% in 2021 through March 19th and still beat the market by 0.8 percentage points. Unfortunately TDG wasn't nearly as popular as these 30 stocks and hedge funds that were betting on TDG were disappointed as the stock returned -2.8% since the end of the fourth quarter (through 3/19) 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 most of these stocks already outperformed the market since 2019.

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

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