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Were Hedge Funds Right About Texas Instruments (TXN)?

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Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Texas Instruments Incorporated (NASDAQ:TXN).

Texas Instruments Incorporated (NASDAQ:TXN) has experienced an increase in enthusiasm from smart money in recent months. Texas Instruments Incorporated (NASDAQ:TXN) was in 50 hedge funds' portfolios at the end of June. The all time high for this statistic is 60. Our calculations also showed that TXN isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 monthly stock picks returned 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Phill Gross Adage Capital Phillip Gross
Phill Gross Adage Capital Phillip Gross

Phillip Gross of Adage Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, billionaire John Paulson is loading up on the miners, so we are checking out stock pitches like this mining stock. We go through lists like the 10 best EV 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. With all of this in mind let's check out the fresh hedge fund action regarding Texas Instruments Incorporated (NASDAQ:TXN).

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

At Q2's end, a total of 50 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 19% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in TXN over the last 24 quarters. With hedgies' sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

Among these funds, AQR Capital Management held the most valuable stake in Texas Instruments Incorporated (NASDAQ:TXN), which was worth $470.5 million at the end of the second quarter. On the second spot was Generation Investment Management which amassed $324.5 million worth of shares. Diamond Hill Capital, Impax Asset Management, and Adage Capital Management 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 Bristol Gate Capital Partners allocated the biggest weight to Texas Instruments Incorporated (NASDAQ:TXN), around 4.2% of its 13F portfolio. Heathbridge Capital Management is also relatively very bullish on the stock, dishing out 3.97 percent of its 13F equity portfolio to TXN.

As industrywide interest jumped, key money managers have jumped into Texas Instruments Incorporated (NASDAQ:TXN) headfirst. Renaissance Technologies, created the biggest position in Texas Instruments Incorporated (NASDAQ:TXN). Renaissance Technologies had $36.6 million invested in the company at the end of the quarter. Ray Dalio's Bridgewater Associates also initiated a $17.2 million position during the quarter. The other funds with new positions in the stock are D. E. Shaw's D E Shaw, Karim Abbadi and Edward McBride's Centiva Capital, and Stephen Mildenhall's Contrarius Investment Management.

Let's check out hedge fund activity in other stocks similar to Texas Instruments Incorporated (NASDAQ:TXN). These stocks are Costco Wholesale Corporation (NASDAQ:COST), McDonald's Corporation (NYSE:MCD), Morgan Stanley (NYSE:MS), Medtronic plc (NYSE:MDT), SAP SE (NYSE:SAP), QUALCOMM, Incorporated (NASDAQ:QCOM), and Pinduoduo Inc. (NASDAQ:PDD). All of these stocks' market caps are similar to TXN's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position COST,54,4321174,-2 MCD,66,2714779,-1 MS,69,5347633,-10 MDT,68,3390607,3 SAP,17,1603691,-2 QCOM,72,4047519,-1 PDD,49,5276960,-7 Average,56.4,3814623,-2.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 56.4 hedge funds with bullish positions and the average amount invested in these stocks was $3815 million. That figure was $2469 million in TXN's case. QUALCOMM, Incorporated (NASDAQ:QCOM) is the most popular stock in this table. On the other hand SAP SE (NYSE:SAP) is the least popular one with only 17 bullish hedge fund positions. Texas Instruments Incorporated (NASDAQ:TXN) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for TXN is 65. 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 negative signal and 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 29.6% in 2021 through November 5th and surpassed the market again by 3.1 percentage points. Unfortunately TXN wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); TXN investors were disappointed as the stock returned 1.8% since the end of June (through 11/5) 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 most of these stocks already outperformed the market in 2021.

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