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Is Timken Company (TKR) Going To Burn These Hedge Funds ?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find write-ups about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves and analyze what the smart money thinks of The Timken Company (NYSE:TKR) based on that data.

Hedge fund interest in The Timken Company (NYSE:TKR) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare TKR to other stocks including Valvoline Inc. (NYSE:VVV), Enstar Group Ltd. (NASDAQ:ESGR), and frontdoor, inc. (NASDAQ:FTDR) to get a better sense of its popularity. Our calculations also showed that TKR 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

TKR_oct2019

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 go over the key hedge fund action surrounding The Timken Company (NYSE:TKR).

How are hedge funds trading The Timken Company (NYSE:TKR)?

At the end of the second quarter, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the first quarter of 2019. By comparison, 22 hedge funds held shares or bullish call options in TKR a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Alexander Roepers, Atlantic Investment Management

The largest stake in The Timken Company (NYSE:TKR) was held by AQR Capital Management, which reported holding $53.9 million worth of stock at the end of March. It was followed by Atlantic Investment Management with a $47 million position. Other investors bullish on the company included D E Shaw, Millennium Management, and Adage Capital Management.

Due to the fact that The Timken Company (NYSE:TKR) has faced falling interest from hedge fund managers, it’s easy to see that there exists a select few funds who were dropping their entire stakes last quarter. It’s worth mentioning that Sander Gerber’s Hudson Bay Capital Management sold off the largest stake of all the hedgies tracked by Insider Monkey, totaling close to $8.1 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund dumped about $7.4 million worth. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as The Timken Company (NYSE:TKR) but similarly valued. We will take a look at Valvoline Inc. (NYSE:VVV), Enstar Group Ltd. (NASDAQ:ESGR), frontdoor, inc. (NASDAQ:FTDR), and Texas Roadhouse Inc (NASDAQ:TXRH). All of these stocks’ market caps match TKR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VVV 22 229753 3
ESGR 10 302329 -1
FTDR 40 739174 6
TXRH 23 257119 -2
Average 23.75 382094 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $382 million. That figure was $249 million in TKR’s case. frontdoor, inc. (NASDAQ:FTDR) is the most popular stock in this table. On the other hand Enstar Group Ltd. (NASDAQ:ESGR) is the least popular one with only 10 bullish hedge fund positions. The Timken Company (NYSE:TKR) 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 TKR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on TKR were disappointed as the stock returned -14.7% 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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