Hedge fund managers like David Einhorn, Bill Ackman, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Tenneco Inc (NYSE:TEN).
Tenneco Inc (NYSE:TEN) has seen an increase in support from the world's most elite money managers recently. TEN was in 25 hedge funds' portfolios at the end of December. There were 22 hedge funds in our database with TEN holdings at the end of the previous quarter. Our calculations also showed that TEN isn't among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Carl Icahn
We're going to take a glance at the latest hedge fund action encompassing Tenneco Inc (NYSE:TEN).
How have hedgies been trading Tenneco Inc (NYSE:TEN)?
At the end of the fourth quarter, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from the previous quarter. On the other hand, there were a total of 26 hedge funds with a bullish position in TEN a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
TEN_apr2019
More specifically, Icahn Capital LP was the largest shareholder of Tenneco Inc (NYSE:TEN), with a stake worth $154.8 million reported as of the end of December. Trailing Icahn Capital LP was GAMCO Investors, which amassed a stake valued at $17.4 million. Diamond Hill Capital, D E Shaw, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
As one would reasonably expect, specific money managers were breaking ground themselves. Icahn Capital LP, managed by Carl Icahn, initiated the biggest position in Tenneco Inc (NYSE:TEN). Icahn Capital LP had $154.8 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital also made a $5.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Matthew Hulsizer's PEAK6 Capital Management, Brandon Haley's Holocene Advisors, and Minhua Zhang's Weld Capital Management.
Let's go over hedge fund activity in other stocks similar to Tenneco Inc (NYSE:TEN). These stocks are Golar LNG Limited (NASDAQ:GLNG), Allakos Inc. (NASDAQ:ALLK), Watts Water Technologies Inc (NYSE:WTS), and Sanderson Farms, Inc. (NASDAQ:SAFM). This group of stocks' market values are closest to TEN's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GLNG,32,501581,-2 ALLK,10,195505,-2 WTS,17,273895,2 SAFM,13,358982,-2 Average,18,332491,-1 [/table]
As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $332 million. That figure was $239 million in TEN's case. Golar LNG Limited (NASDAQ:GLNG) is the most popular stock in this table. On the other hand Allakos Inc. (NASDAQ:ALLK) is the least popular one with only 10 bullish hedge fund positions. Tenneco Inc (NYSE:TEN) 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately TEN wasn't nearly as popular as these 15 stock and hedge funds that were betting on TEN were disappointed as the stock returned -9.5% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.
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