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Were Hedge Funds Right About Piling Into Timkensteel Corp (TMST)?

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Last year we predicted the arrival of the first US recession since 2009 and we told in advance that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Timkensteel Corp (NYSE:TMST).

Is Timkensteel Corp (NYSE:TMST) an exceptional investment today? Prominent investors were getting more bullish. The number of long hedge fund bets rose by 7 recently. Timkensteel Corp (NYSE:TMST) was in 17 hedge funds' portfolios at the end of March. The all time high for this statistic is 19. Our calculations also showed that TMST isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

In the financial world there are a multitude of gauges stock market investors have at their disposal to evaluate their holdings. A couple of the best gauges are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the top picks of the elite money managers can outclass the broader indices by a solid margin (see the details here). Also, our monthly newsletter's portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .

John Overdeck of Two Sigma
John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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. With all of this in mind let's take a look at the fresh hedge fund action encompassing Timkensteel Corp (NYSE:TMST).

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

At first quarter's end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 70% from the fourth quarter of 2020. On the other hand, there were a total of 11 hedge funds with a bullish position in TMST a year ago. With hedge funds' capital changing hands, there exists a few key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, D. E. Shaw's D E Shaw has the number one position in Timkensteel Corp (NYSE:TMST), worth close to $15 million, comprising less than 0.1%% of its total 13F portfolio. The second largest stake is held by Chuck Royce of Royce & Associates, with a $12.7 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish include John Overdeck and David Siegel's Two Sigma Advisors, Renaissance Technologies and Israel Englander's Millennium Management. In terms of the portfolio weights assigned to each position Sabrepoint Capital allocated the biggest weight to Timkensteel Corp (NYSE:TMST), around 1.11% of its 13F portfolio. Invenomic Capital Management is also relatively very bullish on the stock, designating 0.52 percent of its 13F equity portfolio to TMST.

Now, key hedge funds were breaking ground themselves. Royce & Associates, managed by Chuck Royce, initiated the biggest position in Timkensteel Corp (NYSE:TMST). Royce & Associates had $12.7 million invested in the company at the end of the quarter. George Baxter's Sabrepoint Capital also made a $3.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Ali Motamed's Invenomic Capital Management, Michael Gelband's ExodusPoint Capital, and Ken Griffin's Citadel Investment Group.

Let's go over hedge fund activity in other stocks similar to Timkensteel Corp (NYSE:TMST). We will take a look at Juniper Industrial Holdings, Inc. (NYSE:JIH), Cutera, Inc. (NASDAQ:CUTR), Clarus Corporation (NASDAQ:CLAR), Zynex, Inc. (NASDAQ:ZYXI), Aptose Biosciences Inc (NASDAQ:APTO), Electrameccanica Vehicles Corp. (NASDAQ:SOLO), and AMMO, Inc. (NASDAQ:POWW). This group of stocks' market caps match TMST's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position JIH,27,173382,1 CUTR,16,158506,0 CLAR,15,71372,-2 ZYXI,6,8088,-2 APTO,23,173336,2 SOLO,7,11880,0 POWW,7,5716,3 Average,14.4,86040,0.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.4 hedge funds with bullish positions and the average amount invested in these stocks was $86 million. That figure was $65 million in TMST's case. Juniper Industrial Holdings, Inc. (NYSE:JIH) is the most popular stock in this table. On the other hand Zynex, Inc. (NASDAQ:ZYXI) is the least popular one with only 6 bullish hedge fund positions. Timkensteel Corp (NYSE:TMST) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TMST is 63. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.5% in 2021 through July 23rd and beat the market again by 10.1 percentage points. Unfortunately TMST wasn't nearly as popular as these 5 stocks and hedge funds that were betting on TMST were disappointed as the stock returned 8% since the end of March (through 7/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 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.