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Is Teradata Corporation (TDC) Going To Burn These Hedge Funds ?

We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds’ top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 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 Teradata Corporation (NYSE:TDC).

Teradata Corporation (NYSE:TDC) has seen an increase in activity from the world’s largest hedge funds recently. TDC was in 22 hedge funds’ portfolios at the end of the second quarter of 2019. There were 20 hedge funds in our database with TDC positions at the end of the previous quarter. Our calculations also showed that TDC isn’t among the 30 most popular stocks among hedge funds (view the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Izzy Englander of MILLENNIUM MANAGEMENT

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 take a look at the key hedge fund action encompassing Teradata Corporation (NYSE:TDC).

How are hedge funds trading Teradata Corporation (NYSE:TDC)?

At Q2’s end, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from the previous quarter. On the other hand, there were a total of 21 hedge funds with a bullish position in TDC a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

TDC_oct2019

The largest stake in Teradata Corporation (NYSE:TDC) was held by Renaissance Technologies, which reported holding $139.6 million worth of stock at the end of March. It was followed by Arrowstreet Capital with a $27.7 million position. Other investors bullish on the company included Millennium Management, Citadel Investment Group, and D E Shaw.

As industrywide interest jumped, key hedge funds have jumped into Teradata Corporation (NYSE:TDC) headfirst. Lynrock Lake, managed by Cynthia Paul, assembled the biggest position in Teradata Corporation (NYSE:TDC). Lynrock Lake had $4.3 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also initiated a $1.8 million position during the quarter. The following funds were also among the new TDC investors: Benjamin A. Smith’s Laurion Capital Management, Matthew Hulsizer’s PEAK6 Capital Management, and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Teradata Corporation (NYSE:TDC) but similarly valued. These stocks are Spire Inc. (NYSE:SR), Sinopec Shanghai Petrochemical Co. (NYSE:SHI), Aaron’s, Inc. (NYSE:AAN), and Cinemark Holdings, Inc. (NYSE:CNK). This group of stocks’ market valuations are closest to TDC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SR 12 95947 -3
SHI 5 13017 0
AAN 22 337253 2
CNK 22 197886 2
Average 15.25 161026 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $161 million. That figure was $281 million in TDC’s case. Aaron’s, Inc. (NYSE:AAN) is the most popular stock in this table. On the other hand Sinopec Shanghai Petrochemical Co. (NYSE:SHI) is the least popular one with only 5 bullish hedge fund positions. Teradata Corporation (NYSE:TDC) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately TDC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on TDC were disappointed as the stock returned -13.5% during the third 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 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.

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