How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Tyler Technologies, Inc. (NYSE:TYL) and determine whether hedge funds had an edge regarding this stock.
Tyler Technologies, Inc. (NYSE:TYL) investors should pay attention to a decrease in enthusiasm from smart money in recent months. Tyler Technologies, Inc. (NYSE:TYL) was in 30 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 36. Our calculations also showed that TYL isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).
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. Keeping this in mind we’re going to analyze the recent hedge fund action encompassing Tyler Technologies, Inc. (NYSE:TYL).
Do Hedge Funds Think TYL Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2021, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in TYL over the last 25 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Echo Street Capital Management, managed by Greg Poole, holds the largest position in Tyler Technologies, Inc. (NYSE:TYL). Echo Street Capital Management has a $192.8 million position in the stock, comprising 1.4% of its 13F portfolio. The second most bullish fund manager is Kevin Oram and Peter Uddo of Praesidium Investment Management Company, with a $105.3 million position; the fund has 5.8% of its 13F portfolio invested in the stock. Some other peers that hold long positions comprise Robert G. Moses’s RGM Capital, Ken Griffin’s Citadel Investment Group and Jaime Sterne’s Skye Global Management. In terms of the portfolio weights assigned to each position Praesidium Investment Management Company allocated the biggest weight to Tyler Technologies, Inc. (NYSE:TYL), around 5.83% of its 13F portfolio. RGM Capital is also relatively very bullish on the stock, dishing out 4.42 percent of its 13F equity portfolio to TYL.
Due to the fact that Tyler Technologies, Inc. (NYSE:TYL) has witnessed declining sentiment from the smart money, we can see that there exists a select few funds that decided to sell off their full holdings by the end of the third quarter. Intriguingly, Frank Fu’s CaaS Capital dumped the largest investment of the 750 funds monitored by Insider Monkey, comprising an estimated $20.6 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund cut about $12.9 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 3 funds by the end of the third quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Tyler Technologies, Inc. (NYSE:TYL) but similarly valued. These stocks are Hologic, Inc. (NASDAQ:HOLX), Ubiquiti Inc. (NYSE:UI), Seagate Technology Holdings plc (NASDAQ:STX), Hewlett Packard Enterprise Company (NYSE:HPE), Qorvo Inc (NASDAQ:QRVO), Cincinnati Financial Corporation (NASDAQ:CINF), and Ally Financial Inc (NYSE:ALLY). This group of stocks’ market valuations are similar to TYL’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.3 hedge funds with bullish positions and the average amount invested in these stocks was $1271 million. That figure was $773 million in TYL’s case. Ally Financial Inc (NYSE:ALLY) is the most popular stock in this table. On the other hand Ubiquiti Inc. (NYSE:UI) is the least popular one with only 20 bullish hedge fund positions. Tyler Technologies, Inc. (NYSE:TYL) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for TYL is 40.5. 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 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 still managed to beat the market by another 3.6 percentage points. Hedge funds were somewhat right about betting on TYL as the stock returned 3.3% since the end of September (through January 31st) and outperformed the top 5 hedge fund stocks but not the market. This is a rare phenomenon as top hedge fund stocks usually beat the market over the long-term.
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Disclosure: None. This article was originally published at Insider Monkey.