Were Hedge Funds Right About Crowding Into Tempur Sealy International Inc. (TPX)?

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Tempur Sealy International Inc. (NYSE:TPX).

Tempur Sealy International Inc. (NYSE:TPX) was in 46 hedge funds’ portfolios at the end of June. The all time high for this statistics is 42. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. TPX has experienced an increase in enthusiasm from smart money lately. There were 38 hedge funds in our database with TPX positions at the end of the first quarter. Our calculations also showed that TPX isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

According to most investors, hedge funds are assumed to be unimportant, old financial tools of yesteryear. While there are more than 8000 funds trading at present, Our experts choose to focus on the bigwigs of this group, approximately 850 funds. It is estimated that this group of investors watch over the lion’s share of all hedge funds’ total asset base, and by monitoring their matchless equity investments, Insider Monkey has figured out numerous investment strategies that have historically outperformed Mr. Market. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Keeping this in mind let’s go over the recent hedge fund action surrounding Tempur Sealy International Inc. (NYSE:TPX).

What have hedge funds been doing with Tempur Sealy International Inc. (NYSE:TPX)?

At Q2’s end, a total of 46 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 21% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards TPX over the last 20 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, H Partners Management held the most valuable stake in Tempur Sealy International Inc. (NYSE:TPX), which was worth $212.3 million at the end of the third quarter. On the second spot was Route One Investment Company which amassed $151.2 million worth of shares. Eminence Capital, Melvin Capital Management, and Citadel Investment Group 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 H Partners Management allocated the biggest weight to Tempur Sealy International Inc. (NYSE:TPX), around 47.67% of its 13F portfolio. Think Investments is also relatively very bullish on the stock, earmarking 5.26 percent of its 13F equity portfolio to TPX.

With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Melvin Capital Management, managed by Gabriel Plotkin, assembled the biggest position in Tempur Sealy International Inc. (NYSE:TPX). Melvin Capital Management had $100.7 million invested in the company at the end of the quarter. Louis Bacon’s Moore Global Investments also made a $23.8 million investment in the stock during the quarter. The following funds were also among the new TPX investors: Shashin Shah’s Think Investments, Dmitry Balyasny’s Balyasny Asset Management, and Brad Stephens’s Six Columns Capital.

Let’s go over hedge fund activity in other stocks similar to Tempur Sealy International Inc. (NYSE:TPX). These stocks are Dicks Sporting Goods Inc (NYSE:DKS), Ultrapar Participacoes SA (NYSE:UGP), RLI Corp. (NYSE:RLI), Agios Pharmaceuticals Inc (NASDAQ:AGIO), Tapestry, Inc. (NYSE:TPR), Simpson Manufacturing Co, Inc. (NYSE:SSD), and Alamos Gold Inc (NYSE:AGI). This group of stocks’ market valuations are closest to TPX’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.7 hedge funds with bullish positions and the average amount invested in these stocks was $326 million. That figure was $1023 million in TPX’s case. Dicks Sporting Goods Inc (NYSE:DKS) is the most popular stock in this table. On the other hand Ultrapar Participacoes SA (NYSE:UGP) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Tempur Sealy International Inc. (NYSE:TPX) is more popular among hedge funds. Our overall hedge fund sentiment score for TPX is 90. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 30% in 2020 through October 23rd but still managed to beat the market by 21 percentage points. Hedge funds were also right about betting on TPX as the stock returned 23.2% since the end of June (through 10/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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