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Is Ternium S.A. (TX) 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 Ternium S.A. (NYSE:TX).

Ternium S.A. (NYSE:TX) shareholders have witnessed an increase in hedge fund interest lately. TX was in 14 hedge funds’ portfolios at the end of the second quarter of 2019. There were 12 hedge funds in our database with TX positions at the end of the previous quarter. Our calculations also showed that TX 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.

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 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 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.

Gifford Combs - Dalton Investments

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 glance at the latest hedge fund action surrounding Ternium S.A. (NYSE:TX).

What have hedge funds been doing with Ternium S.A. (NYSE:TX)?

At the end of the second quarter, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards TX over the last 16 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

TX_oct2019

More specifically, Contrarian Capital was the largest shareholder of Ternium S.A. (NYSE:TX), with a stake worth $41.9 million reported as of the end of March. Trailing Contrarian Capital was Millennium Management, which amassed a stake valued at $13.3 million. D E Shaw, Dalton Investments, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.

As one would reasonably expect, specific money managers have been driving this bullishness. Moore Global Investments, managed by Louis Bacon, initiated the most outsized position in Ternium S.A. (NYSE:TX). Moore Global Investments had $2.1 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $0.5 million investment in the stock during the quarter. The other funds with brand new TX positions are Mike Vranos’s Ellington, Matthew Tewksbury’s Stevens Capital Management, and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Ternium S.A. (NYSE:TX) but similarly valued. These stocks are FirstCash, Inc. (NASDAQ:FCFS), ALLETE Inc (NYSE:ALE), Ita? CorpBanca (NYSE:ITCB), and Gold Fields Limited (NYSE:GFI). This group of stocks’ market caps are closest to TX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FCFS 15 172032 3
ALE 24 261066 6
ITCB 1 4019 0
GFI 14 209608 4
Average 13.5 161681 3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $162 million. That figure was $74 million in TX’s case. ALLETE Inc (NYSE:ALE) is the most popular stock in this table. On the other hand Ita? CorpBanca (NYSE:ITCB) is the least popular one with only 1 bullish hedge fund positions. Ternium S.A. (NYSE:TX) 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 TX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on TX were disappointed as the stock returned -14.4% 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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