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 Tenneco Inc (NYSE:TEN).
Is Tenneco Inc (NYSE:TEN) worth your attention right now? Investors who are in the know were taking an optimistic view. The number of bullish hedge fund bets increased by 4 in recent months. Tenneco Inc (NYSE:TEN) was in 18 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 31. Our calculations also showed that TEN isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 percentage points since March 2017 (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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
David Tepper
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. With all of this in mind we’re going to take a look at the fresh hedge fund action surrounding Tenneco Inc (NYSE:TEN).
Do Hedge Funds Think TEN Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 29% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards TEN over the last 21 quarters. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Carl Icahn’s Icahn Capital LP has the number one position in Tenneco Inc (NYSE:TEN), worth close to $63.4 million, accounting for 0.4% of its total 13F portfolio. Coming in second is Appaloosa Management LP, led by David Tepper, holding a $5.2 million position; 0.1% of its 13F portfolio is allocated to the company. Other professional money managers that hold long positions consist of Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Mario Gabelli’s GAMCO Investors and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Icahn Capital LP allocated the biggest weight to Tenneco Inc (NYSE:TEN), around 0.36% of its 13F portfolio. Invenomic Capital Management is also relatively very bullish on the stock, earmarking 0.2 percent of its 13F equity portfolio to TEN.
As one would reasonably expect, key hedge funds have jumped into Tenneco Inc (NYSE:TEN) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the biggest position in Tenneco Inc (NYSE:TEN). Arrowstreet Capital had $3.7 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $2.4 million position during the quarter. The following funds were also among the new TEN investors: Andy Redleaf’s Whitebox Advisors, Jonathan Soros’s JS Capital, and Ali Motamed’s Invenomic Capital Management.
Let’s now review hedge fund activity in other stocks similar to Tenneco Inc (NYSE:TEN). These stocks are Avita Medical Limited (NASDAQ:RCEL), Tanger Factory Outlet Centers Inc. (NYSE:SKT), Playa Hotels & Resorts N.V. (NASDAQ:PLYA), Apogee Enterprises, Inc. (NASDAQ:APOG), Crossamerica Partners LP (NYSE:CAPL), Aurora Cannabis Inc. (NASDAQ:ACB), and FinVolution Group (NYSE:FINV). This group of stocks’ market values match TEN’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RCEL | 5 | 59882 | 3 |
| SKT | 13 | 23915 | -2 |
| PLYA | 16 | 259892 | -1 |
| APOG | 12 | 25259 | 2 |
| CAPL | 1 | 165 | 0 |
| ACB | 10 | 9222 | 0 |
| FINV | 5 | 1999 | -4 |
| Average | 8.9 | 54333 | -0.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.9 hedge funds with bullish positions and the average amount invested in these stocks was $54 million. That figure was $82 million in TEN’s case. Playa Hotels & Resorts N.V. (NASDAQ:PLYA) is the most popular stock in this table. On the other hand Crossamerica Partners LP (NYSE:CAPL) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Tenneco Inc (NYSE:TEN) is more popular among hedge funds. Our overall hedge fund sentiment score for TEN is 76.4. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks returned 30.7% in 2020 through December 14th but still managed to beat the market by 15.8 percentage points. Hedge funds were also right about betting on TEN as the stock returned 43.1% since the end of September (through 12/14) 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.
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Disclosure: None. This article was originally published at Insider Monkey.
