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Hedge Fund Consensus Stocks vs. Teradyne, Inc. (TER) In 2019

We are still in an overall bull market and many stocks that smart money investors were piling into surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained more than 57% each. Hedge funds’ top 3 stock picks returned 44.6% this year and beat the S&P 500 ETFs by almost 14 percentage points. That’s a big deal. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Teradyne, Inc. (NASDAQ:TER) has experienced an increase in hedge fund sentiment recently. Our calculations also showed that TER isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Richard Driehaus of Driehaus Capital

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind let’s take a look at the new hedge fund action surrounding Teradyne, Inc. (NASDAQ:TER).

What have hedge funds been doing with Teradyne, Inc. (NASDAQ:TER)?

At the end of the third quarter, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 15% from the previous quarter. On the other hand, there were a total of 25 hedge funds with a bullish position in TER a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in Teradyne, Inc. (NASDAQ:TER), which was worth $321.9 million at the end of the third quarter. On the second spot was D E Shaw which amassed $142.4 million worth of shares. Two Sigma Advisors, Arrowstreet Capital, and Alkeon Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Sandler Capital Management allocated the biggest weight to Teradyne, Inc. (NASDAQ:TER), around 0.84% of its 13F portfolio. PDT Partners is also relatively very bullish on the stock, earmarking 0.66 percent of its 13F equity portfolio to TER.

As one would reasonably expect, specific money managers were breaking ground themselves. D E Shaw, managed by David E. Shaw, established the most valuable call position in Teradyne, Inc. (NASDAQ:TER). D E Shaw had $4.8 million invested in the company at the end of the quarter. Frank Slattery’s Symmetry Peak Management also made a $1.7 million investment in the stock during the quarter. The following funds were also among the new TER investors: Paul Marshall and Ian Wace’s Marshall Wace, Mike Vranos’s Ellington, and Richard Driehaus’s Driehaus Capital.

Let’s go over hedge fund activity in other stocks similar to Teradyne, Inc. (NASDAQ:TER). We will take a look at Datadog, Inc. (NASDAQ:DDOG), The Western Union Company (NYSE:WU), Autohome Inc (NYSE:ATHM), and Chewy, Inc. (NYSE:CHWY). This group of stocks’ market values are similar to TER’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DDOG 39 208582 39
WU 20 413091 -3
ATHM 10 1157371 -6
CHWY 24 477781 -14
Average 23.25 564206 4

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $564 million. That figure was $1129 million in TER’s case. Datadog, Inc. (NASDAQ:DDOG) is the most popular stock in this table. On the other hand Autohome Inc (NYSE:ATHM) is the least popular one with only 10 bullish hedge fund positions. Teradyne, Inc. (NASDAQ:TER) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on TER as the stock returned 121.8% in 2019 (through December 23rd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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