Hedge Funds Aren’t Crazy About The Timken Company (TKR) Anymore

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks initially suffered the most but many of these stocks delivered strong returns since November and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment towards The Timken Company (NYSE:TKR) changed recently.

Is The Timken Company (NYSE:TKR) worth your attention right now? Money managers were taking a pessimistic view. The number of long hedge fund positions shrunk by 11 lately. The Timken Company (NYSE:TKR) was in 23 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 40. Our calculations also showed that TKR isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 34 hedge funds in our database with TKR positions at the end of the fourth quarter.

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 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Ian Wace Marshall Wace

Ian Wace of Marshall Wace

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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. You can subscribe to our free daily newsletter on our homepage. With all of this in mind we’re going to review the latest hedge fund action encompassing The Timken Company (NYSE:TKR).

Do Hedge Funds Think TKR Is A Good Stock To Buy Now?

Heading into the second quarter of 2021, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -32% from the fourth quarter of 2020. On the other hand, there were a total of 30 hedge funds with a bullish position in TKR a year ago. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, AQR Capital Management, managed by Cliff Asness, holds the most valuable position in The Timken Company (NYSE:TKR). AQR Capital Management has a $68.8 million position in the stock, comprising 0.1% of its 13F portfolio. On AQR Capital Management’s heels is Phill Gross and Robert Atchinson of Adage Capital Management, with a $33.2 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that hold long positions encompass Paul Marshall and Ian Wace’s Marshall Wace LLP, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Alexander Mitchell’s Scopus Asset Management. In terms of the portfolio weights assigned to each position Sabrepoint Capital allocated the biggest weight to The Timken Company (NYSE:TKR), around 1.45% of its 13F portfolio. McKinley Capital Management is also relatively very bullish on the stock, setting aside 0.74 percent of its 13F equity portfolio to TKR.

Since The Timken Company (NYSE:TKR) has experienced declining sentiment from the aggregate hedge fund industry, it’s easy to see that there were a few hedgies that elected to cut their entire stakes in the first quarter. Interestingly, Principal Global Investors’s Columbus Circle Investors cut the biggest stake of all the hedgies tracked by Insider Monkey, valued at close to $33.1 million in stock. Israel Englander’s fund, Millennium Management, also said goodbye to its stock, about $21.3 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 11 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as The Timken Company (NYSE:TKR) but similarly valued. These stocks are nCino, Inc. (NASDAQ:NCNO), BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ), Globus Medical Inc (NYSE:GMED), Harley-Davidson, Inc. (NYSE:HOG), Emcor Group Inc (NYSE:EME), MP Materials Corp. (NYSE:MP), and Lattice Semiconductor Corporation (NASDAQ:LSCC). This group of stocks’ market caps match TKR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NCNO 21 342756 -7
BJ 14 135957 -11
GMED 28 193769 -6
HOG 28 822936 -7
EME 20 166658 -5
MP 29 2624120 -3
LSCC 24 276967 1
Average 23.4 651880 -5.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.4 hedge funds with bullish positions and the average amount invested in these stocks was $652 million. That figure was $226 million in TKR’s case. MP Materials Corp. (NYSE:MP) is the most popular stock in this table. On the other hand BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ) is the least popular one with only 14 bullish hedge fund positions. The Timken Company (NYSE:TKR) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for TKR is 41.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and surpassed the market again by 7.7 percentage points. Unfortunately TKR wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); TKR investors were disappointed as the stock returned -6.3% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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