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Did Hedge Funds Make The Right Call On Teradata Corporation (TDC)?

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 Teradata Corporation (NYSE:TDC) and determine whether hedge funds had an edge regarding this stock.

Teradata Corporation (NYSE:TDC) shareholders have witnessed a decrease in activity from the world’s largest hedge funds recently. Our calculations also showed that TDC 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.

If you’d ask most investors, hedge funds are assumed to be underperforming, outdated financial vehicles of the past. While there are greater than 8000 funds in operation at the moment, We look at the leaders of this club, about 850 funds. These money managers manage most of the smart money’s total asset base, and by shadowing their finest picks, Insider Monkey has discovered numerous investment strategies that have historically surpassed the broader indices. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. 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 if you have any good ideas send us an email. Now we’re going to go over the fresh hedge fund action regarding Teradata Corporation (NYSE:TDC).

What does smart money think about Teradata Corporation (NYSE:TDC)?

At the end of the first quarter, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards TDC 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.

Is TDC A Good Stock To Buy?

The largest stake in Teradata Corporation (NYSE:TDC) was held by Lynrock Lake, which reported holding $41.9 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $35.3 million position. Other investors bullish on the company included Two Sigma Advisors, Carlson Capital, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Lynrock Lake allocated the biggest weight to Teradata Corporation (NYSE:TDC), around 4.13% of its 13F portfolio. Clearline Capital is also relatively very bullish on the stock, setting aside 1.18 percent of its 13F equity portfolio to TDC.

Because Teradata Corporation (NYSE:TDC) has witnessed a decline in interest from the aggregate hedge fund industry, it’s easy to see that there were a few hedgies who sold off their full holdings in the first quarter. Interestingly, Dmitry Balyasny’s Balyasny Asset Management dropped the largest position of the “upper crust” of funds followed by Insider Monkey, valued at close to $27.9 million in stock. Anand Parekh’s fund, Alyeska Investment Group, also cut its stock, about $17.4 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 4 funds in the first quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Teradata Corporation (NYSE:TDC) but similarly valued. These stocks are MGE Energy, Inc. (NASDAQ:MGEE), Ra Pharmaceuticals, Inc. (NASDAQ:RARX), Penske Automotive Group, Inc. (NYSE:PAG), and Cloudera, Inc. (NYSE:CLDR). This group of stocks’ market caps are similar to TDC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MGEE 6 38970 -3
RARX 34 890266 6
PAG 19 69005 -10
CLDR 26 583741 4
Average 21.25 395496 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $395 million. That figure was $172 million in TDC’s case. Ra Pharmaceuticals, Inc. (NASDAQ:RARX) is the most popular stock in this table. On the other hand MGE Energy, Inc. (NASDAQ:MGEE) is the least popular one with only 6 bullish hedge fund positions. Teradata Corporation (NYSE:TDC) 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately TDC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on TDC were disappointed as the stock returned 1.5% 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.