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Is Teradyne, Inc. (TER) Going to Burn These Hedge Funds?

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 30 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated a return of 15.1% over the last 12 months (vs. 5.6% gain for SPY), with 53% of these stocks outperforming the benchmark. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Teradyne, Inc. (NASDAQ:TER).

Hedge fund interest in Teradyne shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as W.P. Carey Inc. REIT (NYSE:WPC), Xerox Corporation (NYSE:XRX), and Caesars Entertainment Corp (NASDAQ:CZR) to gather more data points.

In the financial world, there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 6.3% year to date (through December 3rd) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 18 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Chuck Royce

Director J Edwin Gillis was responsible for the last major insider purchase of the company’s stock, snapping up 6,688 shares at $3.36. Shares of the company trade at $37.25 as of this writing, so it can be said it was a worthwhile investment.

How are hedge funds trading Teradyne, Inc. (NASDAQ:TER)?

At Q3’s end, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, representing no change from the second quarter of 2018. By comparison, 34 hedge funds held shares or bullish call options in TER heading into this year. With hedgies’ sentiment swirling, there exist a few key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

TER_dec2018

The largest stake in Teradyne, Inc. (NASDAQ:TER) was held by Alkeon Capital Management, which reported holding $115.3 million worth of stock at the end of September. It was followed by Two Sigma Advisors with a $62.1 million position. Other investors bullish on the company included Senator Investment Group, Royce & Associates, and Renaissance Technologies.

Since Teradyne, Inc. (NASDAQ:TER) has witnessed falling interest from the aggregate hedge fund industry, it’s safe to say that there exist a select few money managers who were dropping their entire stakes heading into Q3. It’s worth mentioning that Jacob Doft’s Highline Capital Management cut the biggest investment of all the hedgies monitored by Insider Monkey, worth about $79.4 million in stock, and Steve Cohen’s Point72 Asset Management was right behind this move, as the fund dumped about $28.2 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks similar to Teradyne, Inc. (NASDAQ:TER). We will take a look at W. P. Carey Inc. (NYSE:WPC), Xerox Corporation (NYSE:XRX), Caesars Entertainment Corp (NASDAQ:CZR), and China Southern Airlines Co Ltd (NYSE:ZNH). This group of stocks’ market values matches TER’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WPC 10 23000 -4
XRX 37 1216394 0
CZR 62 4321459 4
ZNH 5 17559 1
Average 28.5 1394603 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.5 hedge funds with bullish positions and the average amount invested in these stocks was $1.40 billion. That figure was $525 million in TER’s case. Caesars Entertainment Corp (NASDAQ:CZR) is the most popular stock in this table. On the other hand, China Southern Airlines Co Ltd (NYSE:ZNH) is the least popular one with only 5 bullish hedge fund positions. Teradyne, Inc. (NASDAQ:TER) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard, CZR might be a better candidate to consider a long position.

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

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