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Did Hedge Funds Drop The Ball On Teledyne Technologies Incorporated (TDY) ?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Teledyne Technologies Incorporated (NYSE:TDY) and determine whether hedge funds had an edge regarding this stock.

Teledyne Technologies Incorporated (NYSE:TDY) investors should pay attention to a decrease in hedge fund sentiment recently. TDY was in 21 hedge funds’ portfolios at the end of the first quarter of 2020. There were 24 hedge funds in our database with TDY holdings at the end of the previous quarter. Our calculations also showed that TDY isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Lee Ainslie MAVERICK CAPITAL

Lee Ainslie of Maverick Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now let’s take a peek at the new hedge fund action regarding Teledyne Technologies Incorporated (NYSE:TDY).

How are hedge funds trading Teledyne Technologies Incorporated (NYSE:TDY)?

Heading into the second quarter of 2020, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards TDY over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

More specifically, AQR Capital Management was the largest shareholder of Teledyne Technologies Incorporated (NYSE:TDY), with a stake worth $112.9 million reported as of the end of September. Trailing AQR Capital Management was Fisher Asset Management, which amassed a stake valued at $79.1 million. Cardinal Capital, East Side Capital (RR Partners), and Select Equity Group 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 East Side Capital (RR Partners) allocated the biggest weight to Teledyne Technologies Incorporated (NYSE:TDY), around 8.96% of its 13F portfolio. Cardinal Capital is also relatively very bullish on the stock, designating 2.31 percent of its 13F equity portfolio to TDY.

Due to the fact that Teledyne Technologies Incorporated (NYSE:TDY) has experienced falling interest from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of fund managers that elected to cut their full holdings last quarter. Intriguingly, Paul Marshall and Ian Wace’s Marshall Wace LLP sold off the largest position of the “upper crust” of funds monitored by Insider Monkey, comprising an estimated $6.1 million in stock. Brad Dunkley and Blair Levinsky’s fund, Waratah Capital Advisors, also dropped its stock, about $4.4 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 3 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to Teledyne Technologies Incorporated (NYSE:TDY). We will take a look at Nucor Corporation (NYSE:NUE), Baker Hughes Company (NYSE:BKR), UDR, Inc. (NYSE:UDR), and SK Telecom Co., Ltd. (NYSE:SKM). This group of stocks’ market values match TDY’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NUE 26 95527 0
BKR 30 281145 -7
UDR 19 249574 -2
SKM 5 117014 -1
Average 20 185815 -2.5

View table here if you experience formatting issues.

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 $186 million. That figure was $385 million in TDY’s case. Baker Hughes Company (NYSE:BKR) is the most popular stock in this table. On the other hand SK Telecom Co., Ltd. (NYSE:SKM) is the least popular one with only 5 bullish hedge fund positions. Teledyne Technologies Incorporated (NYSE:TDY) 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 18.6% in 2020 through July 27th but beat the market by 17.1 percentage points. Unfortunately TDY wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on TDY were disappointed as the stock returned 3.4% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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