Terex Corporation (TEX): Are Hedge Funds Right About This Stock?

There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Carl Icahn and George Soros think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other elite funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Terex Corporation (NYSE:TEX).

Terex Corporation (NYSE:TEX) was in 25 hedge funds’ portfolios at the end of the third quarter of 2016. TEX has experienced a decrease in hedge fund interest of late. There were 31 hedge funds in our database with TEX holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Rowan Companies PLC (NYSE:RDC), Cavium Inc (NASDAQ:CAVM), and Washington Federal Inc. (NASDAQ:WAFD) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

Now, let’s take a look at the recent action surrounding Terex Corporation (NYSE:TEX).

What does the smart money think about Terex Corporation (NYSE:TEX)?

At Q3’s end, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a drop of 19% from the second quarter of 2016. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Richard S. Pzena’s Pzena Investment Management has the most valuable position in Terex Corporation (NYSE:TEX), worth close to $185.3 million, accounting for 1.1% of its total 13F portfolio. The second largest stake is held by Citadel Investment Group, managed by Ken Griffin, which holds a $43.6 million position; the fund has less than 0.1% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions encompass Richard McGuire’s Marcato Capital Management, Dmitry Balyasny’s Balyasny Asset Management and Alexander Mitchell’s Scopus Asset Management.

Since Terex Corporation (NYSE:TEX) has experienced declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of money managers who sold off their full holdings by the end of the third quarter. Interestingly, Jacob Doft’s Highline Capital Management said goodbye to the largest investment of the “upper crust” of funds monitored by Insider Monkey, comprising close to $14.6 million in stock. Thomas Steyer’s fund, Farallon Capital, also sold off its position, about $10.1 million worth of TEX shares. These transactions are intriguing to say the least, as total hedge fund interest dropped by 6 funds by the end of the third quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Terex Corporation (NYSE:TEX) but similarly valued. These stocks are Rowan Companies PLC (NYSE:RDC), Cavium Inc (NASDAQ:CAVM), Washington Federal Inc. (NASDAQ:WAFD), and Pampa Energia S.A. (ADR) (NYSE:PAM). This group of stocks’ market valuations are similar to TEX’s market valuation.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $269 million. That figure was $357 million in TEX’s case. Rowan Companies PLC (NYSE:RDC) is the most popular stock in this table. On the other hand Washington Federal Inc. (NASDAQ:WAFD) is the least popular one with only 13 bullish hedge fund positions. Terex Corporation (NYSE:TEX) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard RDC might be a better candidate to consider a long position.

Disclosure: none.