Hedge Funds Are Buying The Timken Company (TKR)

At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Third Point because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.

The Timken Company (NYSE:TKR) was in 27 hedge funds’ portfolios at the end of the third quarter of 2016. TKR shareholders have witnessed an increase in support from the world’s most successful money managers lately. There were 26 hedge funds in our database with TKR holdings at the end of the previous quarter. At the end of this article we will also compare TKR to other stocks including Texas Roadhouse Inc (NASDAQ:TXRH), Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL), and Autohome Inc (ADR) (NYSE:ATHM) to get a better sense of its popularity.

We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.

What does the smart money think about The Timken Company (NYSE:TKR)?

At Q3’s end, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a gain of 4% from the previous quarter. On the other hand, there were a total of 15 hedge funds with a bullish position in TKR at the beginning of this year. With hedgies’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, AQR Capital Management, led by Cliff Asness, holds the largest position in The Timken Company (NYSE:TKR). AQR Capital Management has a $50.6 million position in the stock. Sitting at the No. 2 spot is Citadel Investment Group, led by Ken Griffin, which holds a $15.8 million position. Some other professional money managers that hold long positions comprise D. E. Shaw’s D E Shaw, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Consequently, key money managers were breaking ground themselves. Balyasny Asset Management, led by Dmitry Balyasny, assembled the biggest position in The Timken Company (NYSE:TKR). Balyasny Asset Management had $11.5 million invested in the company at the end of the quarter. Ed Beddow and William Tichy’s Beddow Capital Management also made a $4.8 million investment in the stock during the quarter. The other funds with brand new TKR positions are Alexander Mitchell’s Scopus Asset Management, Ray Carroll’s Breton Hill Capital, and Mike Vranos’ Ellington.

Let’s go over hedge fund activity in other stocks similar to The Timken Company (NYSE:TKR). These stocks are Texas Roadhouse Inc (NASDAQ:TXRH), Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL), Autohome Inc (ADR) (NYSE:ATHM), and Acadia Realty Trust (NYSE:AKR). This group of stocks’ market valuations resemble TKR’s market valuation.

As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $212 million. That figure was $137 million in TKR’s case. Texas Roadhouse Inc (NASDAQ:TXRH) is the most popular stock in this table. On the other hand Acadia Realty Trust (NYSE:AKR) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks The Timken Company (NYSE:TKR) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

Disclosure: None