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Did Hedge Funds Drop The Ball On Tempur Sealy International Inc. (TPX) ?

Amid an overall market correction, many stocks that smart money investors were collectively bullish on tanked during the fourth quarter. Among them, Amazon and Netflix ranked among the top 30 picks and both lost more than 25%. Facebook, which was the second most popular stock, lost 20% amid uncertainty regarding the interest rates and tech valuations. Nevertheless, our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the first 2.5 months of 2019 and outperformed the broader market benchmark by 6.6 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Tempur Sealy International Inc. (NYSE:TPX) was in 31 hedge funds’ portfolios at the end of December. TPX has seen an increase in enthusiasm from smart money lately. There were 30 hedge funds in our database with TPX holdings at the end of the previous quarter. Our calculations also showed that TPX isn’t among the 30 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 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 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.

David Einhorn

Let’s take a peek at the new hedge fund action regarding Tempur Sealy International Inc. (NYSE:TPX).

What does the smart money think about Tempur Sealy International Inc. (NYSE:TPX)?

At Q4’s end, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards TPX over the last 14 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

TPX_apr2019

The largest stake in Tempur Sealy International Inc. (NYSE:TPX) was held by H Partners Management, which reported holding $331.2 million worth of stock at the end of December. It was followed by Route One Investment Company with a $210.8 million position. Other investors bullish on the company included PAR Capital Management, Centerbridge Partners, and Greenlight Capital.

As aggregate interest increased, some big names have been driving this bullishness. Centerbridge Partners, managed by Mark T. Gallogly, established the largest position in Tempur Sealy International Inc. (NYSE:TPX). Centerbridge Partners had $80.4 million invested in the company at the end of the quarter. Ryan Frick and Oliver Evans’s Dorsal Capital Management also made a $41.4 million investment in the stock during the quarter. The other funds with brand new TPX positions are Derek C. Schrier’s Indaba Capital Management, Lee Ainslie’s Maverick Capital, and John Ku’s Manor Road Capital Partners.

Let’s also examine hedge fund activity in other stocks similar to Tempur Sealy International Inc. (NYSE:TPX). These stocks are Patterson-UTI Energy, Inc. (NASDAQ:PTEN), frontdoor, inc. (NASDAQ:FTDR), InterDigital, Inc. (NASDAQ:IDCC), and Conduent Incorporated (NYSE:CNDT). This group of stocks’ market values match TPX’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PTEN 39 235916 8
FTDR 24 189778 22
IDCC 21 138794 3
CNDT 35 487994 1
Average 29.75 263121 8.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.75 hedge funds with bullish positions and the average amount invested in these stocks was $263 million. That figure was $1015 million in TPX’s case. Patterson-UTI Energy, Inc. (NASDAQ:PTEN) is the most popular stock in this table. On the other hand InterDigital, Inc. (NASDAQ:IDCC) is the least popular one with only 21 bullish hedge fund positions. Tempur Sealy International Inc. (NYSE:TPX) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on TPX as the stock returned 46% and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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

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