Hedge Funds Have Never Been This Bullish On Tidewater Inc. (TDW)

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Tidewater Inc. (NYSE:TDW).

Is Tidewater Inc. (NYSE:TDW) a good stock to buy now? Hedge funds are taking an optimistic view. The number of long hedge fund bets advanced by 2 recently. Our calculations also showed that TDW isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 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.

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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Martin Whitman Third Avenue Management Marty Whitman

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. 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 also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a peek at the new hedge fund action surrounding Tidewater Inc. (NYSE:TDW).

How have hedgies been trading Tidewater Inc. (NYSE:TDW)?

Heading into the fourth quarter of 2019, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from the second quarter of 2019. By comparison, 11 hedge funds held shares or bullish call options in TDW a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

Is TDW A Good Stock To Buy?

The largest stake in Tidewater Inc. (NYSE:TDW) was held by Third Avenue Management, which reported holding $41.4 million worth of stock at the end of September. It was followed by Raging Capital Management with a $31.7 million position. Other investors bullish on the company included Moerus Capital Management, First Pacific Advisors, and Canyon Capital Advisors. In terms of the portfolio weights assigned to each position Moerus Capital Management allocated the biggest weight to Tidewater Inc. (NYSE:TDW), around 8.4% of its 13F portfolio. Raging Capital Management is also relatively very bullish on the stock, designating 5.11 percent of its 13F equity portfolio to TDW.

As one would reasonably expect, key hedge funds were leading the bulls’ herd. Winton Capital Management, managed by David Harding, established the most outsized position in Tidewater Inc. (NYSE:TDW). Winton Capital Management had $0.9 million invested in the company at the end of the quarter. Minhua Zhang’s Weld Capital Management also initiated a $0.4 million position during the quarter. The only other fund with a brand new TDW position is Hoon Kim’s Quantinno Capital.

Let’s also examine hedge fund activity in other stocks similar to Tidewater Inc. (NYSE:TDW). We will take a look at Malibu Boats Inc (NASDAQ:MBUU), Niu Technologies (NASDAQ:NIU), Myers Industries, Inc. (NYSE:MYE), and Rubius Therapeutics, Inc. (NASDAQ:RUBY). 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
MBUU 20 81462 3
NIU 5 36234 -1
MYE 12 98711 -2
RUBY 5 11603 0
Average 10.5 57003 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $57 million. That figure was $145 million in TDW’s case. Malibu Boats Inc (NASDAQ:MBUU) is the most popular stock in this table. On the other hand Niu Technologies (NASDAQ:NIU) is the least popular one with only 5 bullish hedge fund positions. Tidewater Inc. (NYSE:TDW) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately TDW wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on TDW were disappointed as the stock returned 1.3% during the fourth quarter (through the end of November) 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.