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Do Hedge Funds Love The Timken Company (TKR)?

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, near the height of the coronavirus market crash. In this article, we look at what those funds think of The Timken Company (NYSE:TKR) based on that data.

Is The Timken Company (NYSE:TKR) worth your attention right now? The best stock pickers are reducing their bets on the stock. The number of bullish hedge fund bets retreated by 10 recently. Our calculations also showed that TKR 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). TKR was in 30 hedge funds’ portfolios at the end of the first quarter of 2020. There were 40 hedge funds in our database with TKR holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Phill Gross of Adage Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this oneWe interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to view the new hedge fund action encompassing The Timken Company (NYSE:TKR).

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

At the end of the first quarter, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from the fourth quarter of 2019. By comparison, 26 hedge funds held shares or bullish call options in TKR a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in The Timken Company (NYSE:TKR) was held by Adage Capital Management, which reported holding $83.3 million worth of stock at the end of September. It was followed by AQR Capital Management with a $52.2 million position. Other investors bullish on the company included Citadel Investment Group, Arrowstreet Capital, and Balyasny Asset Management. In terms of the portfolio weights assigned to each position Sandbar Asset Management allocated the biggest weight to The Timken Company (NYSE:TKR), around 1.56% of its 13F portfolio. Diametric Capital is also relatively very bullish on the stock, setting aside 1.47 percent of its 13F equity portfolio to TKR.

Due to the fact that The Timken Company (NYSE:TKR) has experienced a decline in interest from the aggregate hedge fund industry, it’s safe to say that there lies a certain “tier” of funds who were dropping their full holdings heading into Q4. At the top of the heap, Louis Bacon’s Moore Global Investments dropped the biggest investment of the “upper crust” of funds tracked by Insider Monkey, valued at about $14.2 million in stock. Javier Velazquez’s fund, Albar Capital, also dumped its stock, about $12.6 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 10 funds heading into Q4.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as The Timken Company (NYSE:TKR) but similarly valued. We will take a look at Shenandoah Telecommunications Company (NASDAQ:SHEN), Toll Brothers Inc (NYSE:TOL), California Water Service Group (NYSE:CWT), and Eagle Materials, Inc. (NYSE:EXP). This group of stocks’ market caps are similar to TKR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SHEN 11 97332 1
TOL 20 238559 -11
CWT 16 29065 -4
EXP 34 344795 -4
Average 20.25 177438 -4.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $177 million. That figure was $263 million in TKR’s case. Eagle Materials, Inc. (NYSE:EXP) is the most popular stock in this table. On the other hand Shenandoah Telecommunications Company (NASDAQ:SHEN) is the least popular one with only 11 bullish hedge fund positions. The Timken Company (NYSE:TKR) is not the most popular stock in this group but hedge fund interest is still above average. 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 8.3% in 2020 through the end of May but still beat the market by 13.2 percentage points. Hedge funds were also right about betting on TKR as the stock returned 32.4% in Q2 (through the end of May) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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