There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Carl Icahn and George Soros think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other elite funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Textron Inc. (NYSE:TXT).
Textron Inc. (NYSE:TXT) investors should be aware of an increase in activity from the world’s largest hedge funds recently. Our calculations also showed that txt isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 18 percentage points since May 2014 through December 3, 2018 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We’re going to take a look at the new hedge fund action regarding Textron Inc. (NYSE:TXT).
How have hedgies been trading Textron Inc. (NYSE:TXT)?
Heading into the fourth quarter of 2018, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from the previous quarter. By comparison, 22 hedge funds held shares or bullish call options in TXT heading into this year. 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, GAMCO Investors held the most valuable stake in Textron Inc. (NYSE:TXT), which was worth $178.1 million at the end of the third quarter. On the second spot was Adage Capital Management which amassed $99.8 million worth of shares. Moreover, Arrowstreet Capital, Citadel Investment Group, and AQR Capital Management were also bullish on Textron Inc. (NYSE:TXT), allocating a large percentage of their portfolios to this stock.
As industrywide interest jumped, key hedge funds were breaking ground themselves. Adage Capital Management, managed by Phill Gross and Robert Atchinson, initiated the largest position in Textron Inc. (NYSE:TXT). Adage Capital Management had $99.8 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $79.2 million investment in the stock during the quarter. The other funds with new positions in the stock are John Overdeck and David Siegel’s Two Sigma Advisors, Nick Niell’s Arrowgrass Capital Partners, and David Costen Haley’s HBK Investments.
Let’s go over hedge fund activity in other stocks similar to Textron Inc. (NYSE:TXT). These stocks are SK Telecom Co., Ltd. (NYSE:SKM), Laboratory Corp. of America Holdings (NYSE:LH), Splunk Inc (NASDAQ:SPLK), and Grifols SA (NASDAQ:GRFS). This group of stocks’ market values are similar to TXT’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SKM | 5 | 40078 | -1 |
| LH | 40 | 1277379 | 7 |
| SPLK | 39 | 900559 | 4 |
| GRFS | 12 | 197680 | 1 |
| Average | 24 | 603924 | 2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $604 million. That figure was $597 million in TXT’s case. Laboratory Corp. of America Holdings (NYSE:LH) is the most popular stock in this table. On the other hand SK Telecom Co., Ltd. (NYSE:SKM) is the least popular one with only 5 bullish hedge fund positions. Textron Inc. (NYSE:TXT) 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. In this regard LH might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
