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Did Hedge Funds Make The Right Call On Terex Corporation (TEX) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtTerex Corporation (NYSE:TEX) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Terex Corporation (NYSE:TEX) shareholders have witnessed a decrease in hedge fund sentiment of late. Our calculations also showed that TEX 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Richard Pzena - Pzena Investment Management

Richard S. Pzena of Pzena Investment Management

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. Keeping this in mind we’re going to take a look at the key hedge fund action surrounding Terex Corporation (NYSE:TEX).

How are hedge funds trading Terex Corporation (NYSE:TEX)?

At Q1’s end, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the previous quarter. On the other hand, there were a total of 21 hedge funds with a bullish position in TEX a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

The largest stake in Terex Corporation (NYSE:TEX) was held by Pzena Investment Management, which reported holding $66.5 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $28.3 million position. Other investors bullish on the company included AQR Capital Management, D E Shaw, and Marshall Wace LLP. In terms of the portfolio weights assigned to each position Pzena Investment Management allocated the biggest weight to Terex Corporation (NYSE:TEX), around 0.5% of its 13F portfolio. Engineers Gate Manager is also relatively very bullish on the stock, earmarking 0.08 percent of its 13F equity portfolio to TEX.

Because Terex Corporation (NYSE:TEX) has faced falling interest from hedge fund managers, it’s easy to see that there were a few fund managers who were dropping their full holdings in the first quarter. Intriguingly, Larry Foley and Paul Farrell’s Bronson Point Partners cut the biggest investment of the 750 funds watched by Insider Monkey, valued at an estimated $4.2 million in stock. Noam Gottesman’s fund, GLG Partners, also dropped its stock, about $4.2 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 1 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Terex Corporation (NYSE:TEX). We will take a look at Intra-Cellular Therapies Inc (NASDAQ:ITCI), Hope Bancorp, Inc. (NASDAQ:HOPE), SFL Corporation Ltd. (NYSE:SFL), and Comstock Resources Inc (NYSE:CRK). This group of stocks’ market caps resemble TEX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ITCI 19 99236 7
HOPE 18 42707 -1
SFL 14 43537 0
CRK 3 2762 -4
Average 13.5 47061 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $47 million. That figure was $147 million in TEX’s case. Intra-Cellular Therapies Inc (NASDAQ:ITCI) is the most popular stock in this table. On the other hand Comstock Resources Inc (NYSE:CRK) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Terex Corporation (NYSE:TEX) 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 18.6% in 2020 through July 27th but still managed to beat the market by 17.1 percentage points. Hedge funds were also right about betting on TEX as the stock returned 41.9% since Q1 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.