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 (Recession is Imminent: We Need A Travel Ban NOW). 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 Terex Corporation (NYSE:TEX).
Is TEX a good stock to buy now? Money managers were getting less bullish. The number of bullish hedge fund positions retreated by 1 lately. Terex Corporation (NYSE:TEX) was in 18 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 38. Our calculations also showed that TEX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 19 hedge funds in our database with TEX positions at the end of the second quarter.
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 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 S&P 500 ETFs by 66 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 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.
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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind we’re going to take a glance at the key hedge fund action regarding Terex Corporation (NYSE:TEX).
Do Hedge Funds Think TEX Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards TEX over the last 21 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Pzena Investment Management held the most valuable stake in Terex Corporation (NYSE:TEX), which was worth $116.3 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $50.3 million worth of shares. AQR Capital Management, Arrowstreet Capital, 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 Pzena Investment Management allocated the biggest weight to Terex Corporation (NYSE:TEX), around 0.73% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, designating 0.38 percent of its 13F equity portfolio to TEX.
Seeing as Terex Corporation (NYSE:TEX) has experienced bearish sentiment from the entirety of the hedge funds we track, logic holds that there is a sect of funds that elected to cut their positions entirely last quarter. Intriguingly, Joel Greenblatt’s Gotham Asset Management dropped the largest position of all the hedgies followed by Insider Monkey, totaling an estimated $0.8 million in stock, and Donald Sussman’s Paloma Partners was right behind this move, as the fund cut about $0.6 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 1 funds last quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Terex Corporation (NYSE:TEX) but similarly valued. These stocks are Dicerna Pharmaceuticals Inc (NASDAQ:DRNA), HNI Corp (NYSE:HNI), Bloomin’ Brands Inc (NASDAQ:BLMN), Park National Corporation (NYSE:PRK), Gentherm Inc (NASDAQ:THRM), American Woodmark Corporation (NASDAQ:AMWD), and BancFirst Corporation (NASDAQ:BANF). This group of stocks’ market valuations match TEX’s market valuation.
|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 14.1 hedge funds with bullish positions and the average amount invested in these stocks was $89 million. That figure was $212 million in TEX’s case. Dicerna Pharmaceuticals Inc (NASDAQ:DRNA) is the most popular stock in this table. On the other hand Park National Corporation (NYSE:PRK) is the least popular one with only 2 bullish hedge fund positions. Terex Corporation (NYSE:TEX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TEX is 45.8. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on TEX as the stock returned 76% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.