Hedge Funds Aren’t Crazy About Tidewater Inc. (TDW) Anymore

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 Tidewater Inc. (NYSE:TDW) based on that data.

Is Tidewater Inc. (NYSE:TDW) a buy right now? Investors who are in the know are taking a pessimistic view. The number of bullish hedge fund bets fell by 2 lately. Our calculations also showed that TDW 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).

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

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Josh Friedman Canyon Capital

Joshua Friedman of Canyon Capital Advisors

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s check out the fresh hedge fund action regarding Tidewater Inc. (NYSE:TDW).

How are hedge funds trading Tidewater Inc. (NYSE:TDW)?

Heading into the second quarter of 2020, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from the previous quarter. By comparison, 15 hedge funds held shares or bullish call options in TDW a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Tidewater Inc. (NYSE:TDW) was held by Third Avenue Management, which reported holding $19.6 million worth of stock at the end of September. It was followed by Moerus Capital Management with a $14.5 million position. Other investors bullish on the company included First Pacific Advisors LLC, Canyon Capital Advisors, and DC Capital Partners. In terms of the portfolio weights assigned to each position Moerus Capital Management allocated the biggest weight to Tidewater Inc. (NYSE:TDW), around 7.09% of its 13F portfolio. DC Capital Partners is also relatively very bullish on the stock, dishing out 5.19 percent of its 13F equity portfolio to TDW.

Seeing as Tidewater Inc. (NYSE:TDW) has experienced bearish sentiment from hedge fund managers, logic holds that there is a sect of hedge funds who were dropping their entire stakes in the first quarter. At the top of the heap, William C. Martin’s Raging Capital Management dumped the largest position of the “upper crust” of funds watched by Insider Monkey, comprising an estimated $37.3 million in stock, and David Greenspan’s Slate Path Capital was right behind this move, as the fund said goodbye to about $2.1 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds in the first quarter.

Let’s also examine hedge fund activity in other stocks similar to Tidewater Inc. (NYSE:TDW). We will take a look at The Children’s Place Inc. (NASDAQ:PLCE), Nantkwest Inc (NASDAQ:NK), MacroGenics Inc (NASDAQ:MGNX), and UFP Technologies, Inc. (NASDAQ:UFPT). This group of stocks’ market caps resemble TDW’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PLCE 18 93619 -7
NK 4 6187 -3
MGNX 16 34052 -1
UFPT 9 42454 -1
Average 11.75 44078 -3

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $44 million. That figure was $57 million in TDW’s case. The Children’s Place Inc. (NASDAQ:PLCE) is the most popular stock in this table. On the other hand Nantkwest Inc (NASDAQ:NK) is the least popular one with only 4 bullish hedge fund positions. Tidewater Inc. (NYSE:TDW) is not the least popular stock in this group but hedge fund interest is still below average. 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 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 12.2% in 2020 through June 17th and surpassed the market by 14.8 percentage points. Unfortunately TDW wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); TDW investors were disappointed as the stock returned -19.2% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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