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Did Hedge Funds Drop The Ball On Tetra Tech, Inc. (TTEK) ?

Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first quarter, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first quarter still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Tetra Tech, Inc. (NASDAQ:TTEK) changed recently.

Tetra Tech, Inc. (NASDAQ:TTEK) has experienced a decrease in hedge fund interest in recent months. TTEK was in 23 hedge funds’ portfolios at the end of the first quarter of 2019. There were 25 hedge funds in our database with TTEK positions at the end of the previous quarter. Our calculations also showed that ttek 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 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 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.

GOTHAM ASSET MANAGEMENT

We’re going to review the fresh hedge fund action surrounding Tetra Tech, Inc. (NASDAQ:TTEK).

Hedge fund activity in Tetra Tech, Inc. (NASDAQ:TTEK)

At the end of the first quarter, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from one quarter earlier. On the other hand, there were a total of 14 hedge funds with a bullish position in TTEK a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

No of Hedge Funds with TTEK Positions

The largest stake in Tetra Tech, Inc. (NASDAQ:TTEK) was held by GLG Partners, which reported holding $9.8 million worth of stock at the end of March. It was followed by Millennium Management with a $9.8 million position. Other investors bullish on the company included Two Sigma Advisors, Citadel Investment Group, and Gotham Asset Management.

Since Tetra Tech, Inc. (NASDAQ:TTEK) has experienced falling interest from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of hedge funds that slashed their full holdings last quarter. It’s worth mentioning that Martin Whitman’s Third Avenue Management dropped the largest stake of the “upper crust” of funds tracked by Insider Monkey, worth an estimated $6.2 million in stock, and Minhua Zhang’s Weld Capital Management was right behind this move, as the fund sold off about $1.6 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 2 funds last quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Tetra Tech, Inc. (NASDAQ:TTEK) but similarly valued. We will take a look at MFA Financial, Inc. (NYSE:MFA), Silgan Holdings Inc. (NASDAQ:SLGN), iRobot Corporation (NASDAQ:IRBT), and Bank of Hawaii Corporation (NYSE:BOH). This group of stocks’ market valuations resemble TTEK’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MFA 16 130476 -2
SLGN 15 156867 1
IRBT 15 121719 1
BOH 12 126229 -1
Average 14.5 133823 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $134 million. That figure was $58 million in TTEK’s case. MFA Financial, Inc. (NYSE:MFA) is the most popular stock in this table. On the other hand Bank of Hawaii Corporation (NYSE:BOH) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Tetra Tech, Inc. (NASDAQ:TTEK) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on TTEK as the stock returned 12.9% during the same period and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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