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Is Texas Instruments Incorporated (TXN) A Good Stock To Buy?

During the first half of the fourth quarter the Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by about 4 percentage points as investors worried over the possible ramifications of rising interest rates. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only 298 S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Texas Instruments Incorporated (NASDAQ:TXN) and see how the stock is affected by the recent hedge fund activity.

Texas Instruments Incorporated (NASDAQ:TXN) was owned by 48 hedge funds at the end of the third quarter of 2018, which represented a surge of over 25% in Q3. While that wasn’t enough to land TXN on our ranking of the 30 Most Popular Stocks Among Hedge Funds, it did rank 18th among the 20 Dividend Stocks That Billionaires Are Piling On. Texas Instruments carries an impressive dividend yield of 3.32% after the company’s dividend payments were raised by 24% in July.

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 17.4% year to date and outperformed the market by more than 14 percentage points this year. This strategy also outperformed the market by 3 percentage points in the fourth quarter despite the market volatility (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

AQR CAPITAL MANAGEMENT

How are hedge funds trading Texas Instruments Incorporated (NASDAQ:TXN)?

At the end of the third quarter, a total of 48 of the hedge funds tracked by Insider Monkey were long this stock, a 26% surge from the previous quarter. Below, you can check out the change in hedge fund sentiment towards TXN over the last 13 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

TXN_nov2018

Among these funds, AQR Capital Management held the most valuable stake in Texas Instruments Incorporated (NASDAQ:TXN), which was worth $601.5 million at the end of the third quarter. On the second spot was Lansdowne Partners which amassed $497.1 million worth of shares. Moreover, Diamond Hill Capital, Adage Capital Management, and Millennium Management were also bullish on Texas Instruments Incorporated (NASDAQ:TXN), allocating a large percentage of their portfolios to this stock.

Consequently, key money managers were breaking ground themselves. Renaissance Technologies, managed by Jim Simons, established the most outsized position in Texas Instruments Incorporated (NASDAQ:TXN). Renaissance Technologies had $125.8 million invested in the company at the end of the quarter. John Hurley’s Cavalry Asset Management also initiated a $37.4 million position during the quarter. The following funds were also among the new TXN investors: Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Matthew Tewksbury’s Stevens Capital Management, and Sander Gerber’s Hudson Bay Capital Management.

Let’s also examine hedge fund activity in other stocks similar to Texas Instruments Incorporated (NASDAQ:TXN). These stocks are Paypal Holdings Inc (NASDAQ:PYPL), Costco Wholesale Corporation (NASDAQ:COST), Broadcom Inc (NASDAQ:AVGO), and Bristol Myers Squibb Co. (NYSE:BMY). This group of stocks’ market caps are similar to TXN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PYPL 97 4842898 11
COST 39 2833722 -1
AVGO 49 4093454 -5
BMY 48 4045879 3

View table here if you experience formatting issues.

As you can see these stocks had an average of 58 hedge funds with bullish positions and the average amount invested in these stocks was $3.95 billion. That figure was $2.38 billion in TXN’s case. Paypal Holdings Inc (NASDAQ:PYPL) is the most popular stock in this table. On the other hand Costco Wholesale Corporation (NASDAQ:COST) is the least popular one with only 39 bullish hedge fund positions. Texas Instruments Incorporated (NASDAQ:TXN) 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 can’t get enough of, like PYPL.

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

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