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Were Hedge Funds Right About Selling Titan International Inc (TWI)?

Reymerlyn Martin

Legendary investors such as Jeffrey Talpins and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don't publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That's why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze Titan International Inc (NYSE:TWI) from the perspective of those elite funds.

Titan International Inc (NYSE:TWI) investors should be aware of a decrease in hedge fund sentiment in recent months. TWI was in 10 hedge funds' portfolios at the end of June. There were 13 hedge funds in our database with TWI positions at the end of the previous quarter. Our calculations also showed that TWI isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Mark Rachesky MHR

In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources  like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. We're going to take a gander at the recent hedge fund action regarding Titan International Inc (NYSE:TWI).

Hedge fund activity in Titan International Inc (NYSE:TWI)

At Q2's end, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -23% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards TWI over the last 16 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

TWI_nov2019

The largest stake in Titan International Inc (NYSE:TWI) was held by MHR Fund Management, which reported holding $39.1 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $16 million position. Other investors bullish on the company included Rutabaga Capital Management, Point72 Asset Management, and D E Shaw.

Since Titan International Inc (NYSE:TWI) has witnessed falling interest from the smart money, logic holds that there lies a certain "tier" of funds who sold off their full holdings in the second quarter. It's worth mentioning that Steve Cohen's Point72 Asset Management dropped the biggest stake of the "upper crust" of funds followed by Insider Monkey, valued at close to $2.9 million in stock, and Cliff Asness's AQR Capital Management was right behind this move, as the fund dropped about $0.2 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 3 funds in the second quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Titan International Inc (NYSE:TWI) but similarly valued. These stocks are Gladstone Capital Corporation (NASDAQ:GLAD), CEL-SCI Corporation (NYSEAMEX:CVM), Kandi Technologies Group, Inc. (NASDAQ:KNDI), and MutualFirst Financial, Inc. (NASDAQ:MFSF). This group of stocks' market values match TWI's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GLAD,5,5438,0 CVM,2,736,-1 KNDI,3,1929,0 MFSF,3,28796,0 Average,3.25,9225,-0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 3.25 hedge funds with bullish positions and the average amount invested in these stocks was $9 million. That figure was $73 million in TWI's case. Gladstone Capital Corporation (NASDAQ:GLAD) is the most popular stock in this table. On the other hand CEL-SCI Corporation (NYSEAMEX:CVM) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Titan International Inc (NYSE:TWI) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately TWI wasn't nearly as popular as these 20 stocks and hedge funds that were betting on TWI were disappointed as the stock returned -44.7% during the third quarter 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 many of these stocks already outperformed the market in Q3.

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

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