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After several tireless days we have finished crunching the numbers from nearly 750 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms' equity portfolios as of September 30th. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Twin Disc, Incorporated (NASDAQ:TWIN).
Twin Disc, Incorporated (NASDAQ:TWIN) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 5 hedge funds' portfolios at the end of the third quarter of 2019. At the end of this article we will also compare TWIN to other stocks including Harrow Health, Inc. (NASDAQ:HROW), Medley Capital Corp (NYSE:MCC), and Transenterix Inc (NYSE:TRXC) to get a better sense of its popularity.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Now let's review the key hedge fund action surrounding Twin Disc, Incorporated (NASDAQ:TWIN).
Hedge fund activity in Twin Disc, Incorporated (NASDAQ:TWIN)
Heading into the fourth quarter of 2019, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. By comparison, 10 hedge funds held shares or bullish call options in TWIN a year ago. With hedge funds' capital changing hands, there exists an "upper tier" of notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
More specifically, GAMCO Investors was the largest shareholder of Twin Disc, Incorporated (NASDAQ:TWIN), with a stake worth $15.9 million reported as of the end of September. Trailing GAMCO Investors was DC Capital Partners, which amassed a stake valued at $1.1 million. Skylands Capital, Renaissance Technologies, and Royce & Associates 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 DC Capital Partners allocated the biggest weight to Twin Disc, Incorporated (NASDAQ:TWIN), around 0.93% of its 13F portfolio. GAMCO Investors is also relatively very bullish on the stock, earmarking 0.13 percent of its 13F equity portfolio to TWIN.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's now review hedge fund activity in other stocks similar to Twin Disc, Incorporated (NASDAQ:TWIN). These stocks are Harrow Health, Inc. (NASDAQ:HROW), Medley Capital Corp (NYSE:MCC), Transenterix Inc (NYSE:TRXC), and Paratek Pharmaceuticals Inc (NASDAQ:PRTK). This group of stocks' market valuations match TWIN's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HROW,9,27272,0 MCC,9,15591,-1 TRXC,10,5716,0 PRTK,13,35920,0 Average,10.25,21125,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $21 million. That figure was $18 million in TWIN's case. Paratek Pharmaceuticals Inc (NASDAQ:PRTK) is the most popular stock in this table. On the other hand Harrow Health, Inc. (NASDAQ:HROW) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Twin Disc, Incorporated (NASDAQ:TWIN) is even less popular than HROW. Hedge funds dodged a bullet by taking a bearish stance towards TWIN. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately TWIN wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); TWIN investors were disappointed as the stock returned -3.9% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.