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Hedge Funds Dipping Their Toes Back Into Tractor Supply Company (TSCO)

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Tractor Supply Company (NASDAQ:TSCO) and determine whether hedge funds had an edge regarding this stock.

Is Tractor Supply Company (NASDAQ:TSCO) a healthy stock for your portfolio? Hedge funds were becoming hopeful. The number of bullish hedge fund positions moved up by 1 recently. Tractor Supply Company (NASDAQ:TSCO) was in 38 hedge funds’ portfolios at the end of June. The all time high for this statistics is 44. Our calculations also showed that TSCO isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

To most stock holders, hedge funds are viewed as slow, outdated financial vehicles of years past. While there are over 8000 funds with their doors open at present, We look at the masters of this club, approximately 850 funds. It is estimated that this group of investors shepherd most of the smart money’s total capital, and by keeping an eye on their best investments, Insider Monkey has found several investment strategies that have historically defeated Mr. Market. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

John Armitage Egerton Capital

John Armitage of Egerton Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind we’re going to take a gander at the recent hedge fund action surrounding Tractor Supply Company (NASDAQ:TSCO).

How have hedgies been trading Tractor Supply Company (NASDAQ:TSCO)?

At the end of June, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from the previous quarter. By comparison, 35 hedge funds held shares or bullish call options in TSCO a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Tractor Supply Company (NASDAQ:TSCO) was held by Select Equity Group, which reported holding $321.1 million worth of stock at the end of September. It was followed by Egerton Capital Limited with a $95.4 million position. Other investors bullish on the company included AQR Capital Management, Park Presidio Capital, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Park Presidio Capital allocated the biggest weight to Tractor Supply Company (NASDAQ:TSCO), around 7.73% of its 13F portfolio. Parsifal Capital Management is also relatively very bullish on the stock, dishing out 6.83 percent of its 13F equity portfolio to TSCO.

As one would reasonably expect, key hedge funds were breaking ground themselves. Egerton Capital Limited, managed by John Armitage, established the most outsized position in Tractor Supply Company (NASDAQ:TSCO). Egerton Capital Limited had $95.4 million invested in the company at the end of the quarter. David Zorub’s Parsifal Capital Management also initiated a $23.1 million position during the quarter. The other funds with new positions in the stock are Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, Seth Cogswell’s Running Oak Capital, and David Costen Haley’s HBK Investments.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Tractor Supply Company (NASDAQ:TSCO) but similarly valued. We will take a look at CBRE Group, Inc. (NYSE:CBRE), BioNTech SE (NASDAQ:BNTX), The Cooper Companies, Inc. (NYSE:COO), Warner Music Group Corp. (NASDAQ:WMG), Campbell Soup Company (NYSE:CPB), Essex Property Trust Inc (NYSE:ESS), and Teladoc Health, Inc (NYSE:TDOC). All of these stocks’ market caps are similar to TSCO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CBRE 29 1442786 -4
BNTX 15 367554 9
COO 34 876136 9
WMG 31 592226 31
CPB 32 450053 -8
ESS 28 551715 -3
TDOC 44 811816 8
Average 30.4 727469 6

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.4 hedge funds with bullish positions and the average amount invested in these stocks was $727 million. That figure was $828 million in TSCO’s case. Teladoc Health, Inc (NYSE:TDOC) is the most popular stock in this table. On the other hand BioNTech SE (NASDAQ:BNTX) is the least popular one with only 15 bullish hedge fund positions. Tractor Supply Company (NASDAQ:TSCO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TSCO is 71.6. 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 positive signal but 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 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately TSCO wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on TSCO were disappointed as the stock returned 13.2% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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