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Were Hedge Funds Right About Piling Into Teradyne, Inc. (TER)?

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Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 900 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Teradyne, Inc. (NASDAQ:TER) in this article.

Teradyne, Inc. (NASDAQ:TER) was in 47 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic was previously 42. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. TER investors should be aware of an increase in activity from the world's largest hedge funds of late. There were 42 hedge funds in our database with TER positions at the end of the third quarter. Our calculations also showed that TER isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 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 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.

Billionaire David Siegel's Top 10 Stock Picks
Billionaire David Siegel's Top 10 Stock Picks

David Siegel of Two Sigma Advisors

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks 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. Now let's view the latest hedge fund action encompassing Teradyne, Inc. (NASDAQ:TER).

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

At the end of December, a total of 47 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 12% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards TER over the last 22 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Teradyne, Inc. (NASDAQ:TER) was held by Alkeon Capital Management, which reported holding $396.3 million worth of stock at the end of December. It was followed by Arrowstreet Capital with a $194.2 million position. Other investors bullish on the company included Renaissance Technologies, D E Shaw, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Newbrook Capital Advisors allocated the biggest weight to Teradyne, Inc. (NASDAQ:TER), around 2.79% of its 13F portfolio. Beech Hill Partners is also relatively very bullish on the stock, setting aside 1.3 percent of its 13F equity portfolio to TER.

As aggregate interest increased, some big names were breaking ground themselves. Newbrook Capital Advisors, managed by Robert Boucai, established the largest position in Teradyne, Inc. (NASDAQ:TER). Newbrook Capital Advisors had $46.4 million invested in the company at the end of the quarter. Louis Bacon's Moore Global Investments also made a $5.7 million investment in the stock during the quarter. The following funds were also among the new TER investors: Mark Coe's Intrinsic Edge Capital, Richard Schimel and Lawrence Sapanski's Cinctive Capital Management, and Robert Charles Gibbins's Autonomy Capital.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Teradyne, Inc. (NASDAQ:TER) but similarly valued. We will take a look at POSCO (NYSE:PKX), Laboratory Corp. of America Holdings (NYSE:LH), Vulcan Materials Company (NYSE:VMC), Fifth Third Bancorp (NASDAQ:FITB), BioNTech SE (NASDAQ:BNTX), International Paper Company (NYSE:IP), and Northern Trust Corporation (NASDAQ:NTRS). This group of stocks' market valuations are similar to TER's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PKX,10,130115,-1 LH,66,1873964,9 VMC,44,1337772,2 FITB,43,506319,13 BNTX,17,170450,0 IP,31,167610,-1 NTRS,31,388257,3 Average,34.6,653498,3.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.6 hedge funds with bullish positions and the average amount invested in these stocks was $653 million. That figure was $1418 million in TER's case. Laboratory Corp. of America Holdings (NYSE:LH) is the most popular stock in this table. On the other hand POSCO (NYSE:PKX) is the least popular one with only 10 bullish hedge fund positions. Teradyne, Inc. (NASDAQ:TER) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TER is 73. 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 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and beat the market again by 1.6 percentage points. Unfortunately TER wasn't nearly as popular as these 10 stocks and hedge funds that were betting on TER were disappointed as the stock returned 4.4% since the end of December (through 4/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 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.

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