Do Hedge Funds and Insiders Love The Timken Company (TKR)?

The Timken Company (NYSE:TKR) investors should be aware of a decrease in enthusiasm from smart money recently.

The Timken Company

If you’d ask most stock holders, hedge funds are assumed to be worthless, old investment vehicles of yesteryear. While there are over 8000 funds with their doors open today, we at Insider Monkey choose to focus on the aristocrats of this group, about 450 funds. It is widely believed that this group has its hands on most of all hedge funds’ total asset base, and by tracking their highest performing investments, we have unsheathed a number of investment strategies that have historically beaten the broader indices. Our small-cap hedge fund strategy outpaced the S&P 500 index by 18 percentage points per annum for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have outpaced the S&P 500 index by 23.3 percentage points in 8 months (explore the details and some picks here).

Just as important, bullish insider trading activity is a second way to parse down the financial markets. Just as you’d expect, there are many incentives for an upper level exec to downsize shares of his or her company, but just one, very simple reason why they would buy. Several academic studies have demonstrated the valuable potential of this tactic if “monkeys” understand where to look (learn more here).

With these “truths” under our belt, it’s important to take a glance at the latest action surrounding The Timken Company (NYSE:TKR).

What have hedge funds been doing with The Timken Company (NYSE:TKR)?

Heading into Q2, a total of 21 of the hedge funds we track held long positions in this stock, a change of -16% from the previous quarter. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their holdings meaningfully.

When looking at the hedgies we track, Relational Investors, managed by Ralph V. Whitworth, holds the biggest position in The Timken Company (NYSE:TKR). Relational Investors has a $374.4 million position in the stock, comprising 7.2% of its 13F portfolio. Sitting at the No. 2 spot is Cliff Asness of AQR Capital Management, with a $57.3 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Some other peers that are bullish include Thomas E. Claugus’s GMT Capital, Tom Sandell’s Sandell Asset Management and Chuck Royce’s Royce & Associates.

Since The Timken Company (NYSE:TKR) has witnessed bearish sentiment from hedge fund managers, it’s easy to see that there lies a certain “tier” of funds that elected to cut their positions entirely at the end of the first quarter. Interestingly, Alexander Mitchell’s Scopus Asset Management sold off the biggest stake of the 450+ funds we watch, worth close to $12.4 million in stock., and Gilchrist Berg of Water Street Capital was right behind this move, as the fund dumped about $8 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 4 funds at the end of the first quarter.

How are insiders trading The Timken Company (NYSE:TKR)?

Bullish insider trading is particularly usable when the company we’re looking at has seen transactions within the past half-year. Over the latest half-year time period, The Timken Company (NYSE:TKR) has seen zero unique insiders purchasing, and 7 insider sales (see the details of insider trades here).

Let’s go over hedge fund and insider activity in other stocks similar to The Timken Company (NYSE:TKR). These stocks are RBC Bearings Incorporated (NASDAQ:ROLL), Proto Labs Inc (NYSE:PRLB), Stanley Black & Decker, Inc. (NYSE:SWK), Kennametal Inc. (NYSE:KMT), and MRC Global Inc (NYSE:MRC). All of these stocks are in the machine tools & accessories industry and their market caps resemble TKR’s market cap.