Was The Smart Money Right About Texas Instruments Incorporated (TXN)?

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 third quarter. You can find articles 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 over the last 6 years and analyze what the smart money thinks of Texas Instruments Incorporated (NASDAQ:TXN) based on that data and determine whether they were really smart about the stock.

Is Texas Instruments Incorporated (NASDAQ:TXN) undervalued? Money managers were in a pessimistic mood. The number of long hedge fund bets dropped by 10 in recent months. Texas Instruments Incorporated (NASDAQ:TXN) was in 40 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 60. Our calculations also showed that TXN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings). There were 50 hedge funds in our database with TXN holdings at the end of June.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now let’s view the recent hedge fund action regarding Texas Instruments Incorporated (NASDAQ:TXN).

Do Hedge Funds Think TXN Is A Good Stock To Buy Now?

At the end of the third quarter, a total of 40 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from the second quarter of 2021. On the other hand, there were a total of 55 hedge funds with a bullish position in TXN a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

More specifically, AQR Capital Management was the largest shareholder of Texas Instruments Incorporated (NASDAQ:TXN), with a stake worth $436.8 million reported as of the end of September. Trailing AQR Capital Management was Impax Asset Management, which amassed a stake valued at $283.1 million. Citadel Investment Group, GLG Partners, and CaaS Capital 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 Heathbridge Capital Management allocated the biggest weight to Texas Instruments Incorporated (NASDAQ:TXN), around 4.32% of its 13F portfolio. Bristol Gate Capital Partners is also relatively very bullish on the stock, earmarking 4.23 percent of its 13F equity portfolio to TXN.

Judging by the fact that Texas Instruments Incorporated (NASDAQ:TXN) has experienced bearish sentiment from the smart money, it’s safe to say that there is a sect of hedgies that elected to cut their positions entirely by the end of the third quarter. Interestingly, Matthew Stadelman’s Diamond Hill Capital sold off the biggest investment of the 750 funds monitored by Insider Monkey, totaling close to $225.1 million in stock, and Ray Dalio’s Bridgewater Associates was right behind this move, as the fund said goodbye to about $17.2 million worth. These transactions are important to note, as total hedge fund interest was cut by 10 funds by the end of the third quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Texas Instruments Incorporated (NASDAQ:TXN) but similarly valued. We will take a look at Sea Limited (NYSE:SE), Shopify Inc (NYSE:SHOP), Medtronic plc (NYSE:MDT), T-Mobile US, Inc. (NASDAQ:TMUS), SAP SE (NYSE:SAP), United Parcel Service, Inc. (NYSE:UPS), and Moderna, Inc. (NASDAQ:MRNA). This group of stocks’ market valuations resemble TXN’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 63.9 hedge funds with bullish positions and the average amount invested in these stocks was $6415 million. That figure was $1939 million in TXN’s case. Sea Limited (NYSE:SE) is the most popular stock in this table. On the other hand SAP SE (NYSE:SAP) is the least popular one with only 15 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. Our overall hedge fund sentiment score for TXN is 27.3. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and surpassed the market again by 3.6 percentage points. Unfortunately, TXN wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); TXN investors were disappointed as the stock returned -5.4% since the end of September (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.

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