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Did Hedge Funds Make The Right Call On Tempur Sealy International Inc. (TPX) ?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Tempur Sealy International Inc. (NYSE:TPX) based on that data and determine whether they were really smart about the stock.

Is Tempur Sealy International Inc. (NYSE:TPX) a good investment now? Hedge funds were becoming less hopeful. The number of long hedge fund bets shrunk by 4 lately. Our calculations also showed that TPX 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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Ricky Sandler of Eminence Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Keeping this in mind let’s view the recent hedge fund action regarding Tempur Sealy International Inc. (NYSE:TPX).

How have hedgies been trading Tempur Sealy International Inc. (NYSE:TPX)?

At Q1’s end, a total of 38 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards TPX over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, H Partners Management, managed by Rehan Jaffer, holds the number one position in Tempur Sealy International Inc. (NYSE:TPX). H Partners Management has a $161.7 million position in the stock, comprising 62.3% of its 13F portfolio. The second largest stake is held by Route One Investment Company, managed by William Duhamel, which holds a $63.9 million position; the fund has 2.1% of its 13F portfolio invested in the stock. Some other members of the smart money with similar optimism include Ricky Sandler’s Eminence Capital, and Alexander Mitchell’s Scopus Asset Management. In terms of the portfolio weights assigned to each position H Partners Management allocated the biggest weight to Tempur Sealy International Inc. (NYSE:TPX), around 62.31% of its 13F portfolio. Lyon Street Capital is also relatively very bullish on the stock, designating 2.78 percent of its 13F equity portfolio to TPX.

Judging by the fact that Tempur Sealy International Inc. (NYSE:TPX) has witnessed a decline in interest from hedge fund managers, it’s easy to see that there were a few fund managers that slashed their entire stakes by the end of the first quarter. Interestingly, Dmitry Balyasny’s Balyasny Asset Management said goodbye to the largest position of the 750 funds monitored by Insider Monkey, totaling an estimated $32.2 million in stock, and David Einhorn’s Greenlight Capital was right behind this move, as the fund said goodbye to about $23.3 million worth. These transactions are important to note, as total hedge fund interest dropped by 4 funds by the end of the first quarter.

Let’s now review hedge fund activity in other stocks similar to Tempur Sealy International Inc. (NYSE:TPX). These stocks are J&J Snack Foods Corp. (NASDAQ:JJSF), Valmont Industries, Inc. (NYSE:VMI), Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH), and Kohl’s Corporation (NYSE:KSS). This group of stocks’ market caps resemble TPX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
JJSF 17 83077 4
VMI 24 218687 0
DCPH 28 603787 0
KSS 26 145325 -2
Average 23.75 262719 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $263 million. That figure was $502 million in TPX’s case. Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH) is the most popular stock in this table. On the other hand J&J Snack Foods Corp. (NASDAQ:JJSF) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Tempur Sealy International Inc. (NYSE:TPX) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on TPX as the stock returned 64.6% in Q2 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.

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