Hedge Funds Never Been This Bullish On Taubman Centers, Inc. (TCO)

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Taubman Centers, Inc. (NYSE:TCO) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Taubman Centers, Inc. (NYSE:TCO) has seen an increase in support from the world’s most elite money managers in recent months. Taubman Centers, Inc. (NYSE:TCO) was in 40 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 38. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that TCO 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Donald Sussman Paloma Partners

Donald Sussman of Paloma Partners

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 check out the fresh hedge fund action encompassing Taubman Centers, Inc. (NYSE:TCO).

Hedge fund activity in Taubman Centers, Inc. (NYSE:TCO)

At the end of June, a total of 40 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from the previous quarter. By comparison, 25 hedge funds held shares or bullish call options in TCO a year ago. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

More specifically, Pentwater Capital Management was the largest shareholder of Taubman Centers, Inc. (NYSE:TCO), with a stake worth $137.6 million reported as of the end of September. Trailing Pentwater Capital Management was Alpine Associates, which amassed a stake valued at $54.7 million. TIG Advisors, Redwood Capital Management, and D E Shaw 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 Litespeed Management allocated the biggest weight to Taubman Centers, Inc. (NYSE:TCO), around 8.52% of its 13F portfolio. White Square Capital is also relatively very bullish on the stock, earmarking 6.98 percent of its 13F equity portfolio to TCO.

As aggregate interest increased, key money managers have been driving this bullishness. Mason Capital Management, managed by Kenneth Mario Garschina, established the biggest position in Taubman Centers, Inc. (NYSE:TCO). Mason Capital Management had $14.3 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $13.9 million position during the quarter. The other funds with new positions in the stock are John Paulson’s Paulson & Co, Donald Sussman’s Paloma Partners, and Curtis Schenker and Craig Effron’s Scoggin.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Taubman Centers, Inc. (NYSE:TCO) but similarly valued. These stocks are Rogers Corporation (NYSE:ROG), Boyd Gaming Corporation (NYSE:BYD), California Water Service Group (NYSE:CWT), Inspire Medical Systems, Inc. (NYSE:INSP), PacWest Bancorp (NASDAQ:PACW), Compania de Minas Buenaventura S.A.A. (NYSE:BVN), and South Jersey Industries Inc (NYSE:SJI). This group of stocks’ market values match TCO’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ROG 13 100053 -6
BYD 24 179882 -2
CWT 16 54108 0
INSP 24 449227 -1
PACW 24 235216 1
BVN 7 82182 -2
SJI 14 87528 1
Average 17.4 169742 -1.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.4 hedge funds with bullish positions and the average amount invested in these stocks was $170 million. That figure was $522 million in TCO’s case. Boyd Gaming Corporation (NYSE:BYD) is the most popular stock in this table. On the other hand Compania de Minas Buenaventura S.A.A. (NYSE:BVN) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Taubman Centers, Inc. (NYSE:TCO) is more popular among hedge funds. Our overall hedge fund sentiment score for TCO is 87. 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. 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 still beat the market by 23.2 percentage points. Unfortunately TCO wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on TCO were disappointed as the stock returned 1.4% since the end of 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.