Is Tempur Sealy International Inc. (NYSE:TPX) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also have numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is Tempur Sealy International Inc. (NYSE:TPX) undervalued? Prominent investors are buying. The number of long hedge fund positions rose by 4 in recent months. Our calculations also showed that TPX isn’t among the 30 most popular stocks among hedge funds (view the video below). TPX was in 33 hedge funds’ portfolios at the end of the second quarter of 2019. There were 29 hedge funds in our database with TPX holdings at the end of the previous quarter.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s analyze the key hedge fund action regarding Tempur Sealy International Inc. (NYSE:TPX).
What have hedge funds been doing with Tempur Sealy International Inc. (NYSE:TPX)?
At Q2’s end, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of 14% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards TPX over the last 16 quarters. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
Among these funds, H Partners Management held the most valuable stake in Tempur Sealy International Inc. (NYSE:TPX), which was worth $587 million at the end of the second quarter. On the second spot was Route One Investment Company which amassed $308.2 million worth of shares. Moreover, Centerbridge Partners, Scopus Asset Management, and Point72 Asset Management were also bullish on Tempur Sealy International Inc. (NYSE:TPX), allocating a large percentage of their portfolios to this stock.
As aggregate interest increased, specific money managers have jumped into Tempur Sealy International Inc. (NYSE:TPX) headfirst. Moore Global Investments, managed by Louis Bacon, initiated the largest position in Tempur Sealy International Inc. (NYSE:TPX). Moore Global Investments had $27.5 million invested in the company at the end of the quarter. Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital also initiated a $22.7 million position during the quarter. The other funds with brand new TPX positions are Anthony Joseph Vaccarino’s North Fourth Asset Management, Principal Global Investors’s Columbus Circle Investors, and Austin Wiggins Hopper’s AWH Capital.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Tempur Sealy International Inc. (NYSE:TPX) but similarly valued. We will take a look at Blackbaud, Inc. (NASDAQ:BLKB), MSC Industrial Direct Co Inc (NYSE:MSM), Lancaster Colony Corporation (NASDAQ:LANC), and United States Cellular Corporation (NYSE:USM). This group of stocks’ market values resemble TPX’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $136 million. That figure was $1481 million in TPX’s case. Lancaster Colony Corporation (NASDAQ:LANC) is the most popular stock in this table. On the other hand Blackbaud, Inc. (NASDAQ:BLKB) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Tempur Sealy International Inc. (NYSE:TPX) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on TPX, though not to the same extent, as the stock returned 5.2% during the third quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.