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Hedge Funds Are Selling Texas Instruments Incorporated (TXN)

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published this article and predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits.

Is Texas Instruments Incorporated (NASDAQ:TXN) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Texas Instruments Incorporated (NASDAQ:TXN) investors should pay attention to a decrease in enthusiasm from smart money of late. Our calculations also showed that TXN isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

To the average investor there are several indicators investors put to use to assess stocks. Two of the most innovative indicators are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the elite hedge fund managers can outclass the market by a solid amount (see the details here).

David Blood

David Blood of Generation Investment Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Now we’re going to analyze the fresh hedge fund action regarding Texas Instruments Incorporated (NASDAQ:TXN).

What have hedge funds been doing with Texas Instruments Incorporated (NASDAQ:TXN)?

At the end of the fourth quarter, a total of 50 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from one quarter earlier. On the other hand, there were a total of 44 hedge funds with a bullish position in TXN a year ago. With hedge funds’ capital changing hands, there exists a few notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

More specifically, Generation Investment Management was the largest shareholder of Texas Instruments Incorporated (NASDAQ:TXN), with a stake worth $632.3 million reported as of the end of September. Trailing Generation Investment Management was AQR Capital Management, which amassed a stake valued at $489 million. Diamond Hill Capital, Lansdowne Partners, and Citadel Investment Group 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 Heathbridge Capital Management allocated the biggest weight to Texas Instruments Incorporated (NASDAQ:TXN), around 5.63% of its 13F portfolio. Bristol Gate Capital Partners is also relatively very bullish on the stock, earmarking 4.74 percent of its 13F equity portfolio to TXN.

Because Texas Instruments Incorporated (NASDAQ:TXN) has witnessed falling interest from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of hedgies that decided to sell off their full holdings by the end of the third quarter. At the top of the heap, John Hurley’s Cavalry Asset Management said goodbye to the largest investment of the “upper crust” of funds watched by Insider Monkey, totaling about $27.2 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also dumped its stock, about $24.4 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 10 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Texas Instruments Incorporated (NASDAQ:TXN). These stocks are BHP Group (NYSE:BBL), International Business Machines Corp. (NYSE:IBM), NextEra Energy, Inc. (NYSE:NEE), and GlaxoSmithKline plc (NYSE:GSK). This group of stocks’ market caps are closest to TXN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BBL 24 1238737 2
IBM 50 1289370 5
NEE 46 966067 1
GSK 26 2075772 -1
Average 36.5 1392487 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.5 hedge funds with bullish positions and the average amount invested in these stocks was $1392 million. That figure was $2387 million in TXN’s case. International Business Machines Corp. (NYSE:IBM) is the most popular stock in this table. On the other hand BHP Group (NYSE:BBL) is the least popular one with only 24 bullish hedge fund positions. Texas Instruments Incorporated (NASDAQ:TXN) 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th but beat the market by 1.9 percentage points. Unfortunately TXN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on TXN were disappointed as the stock returned -17.5% 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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