In this article we are going to use hedge fund sentiment as a tool and determine whether Tempur Sealy International Inc. (NYSE:TPX) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is TPX a good stock to buy now? Tempur Sealy International Inc. (NYSE:TPX) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 46 hedge funds' portfolios at the end of September. Our calculations also showed that TPX 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). At the end of this article we will also compare TPX to other stocks including Performance Food Group Company (NYSE:PFGC), BridgeBio Pharma, Inc. (NASDAQ:BBIO), and Zai Lab Limited (NASDAQ:ZLAB) to get a better sense of its popularity.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 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 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.
David Harding
David Harding of Winton Capital Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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. Now let's take a gander at the latest hedge fund action regarding Tempur Sealy International Inc. (NYSE:TPX).
Do Hedge Funds Think TPX Is A Good Stock To Buy Now?
At third quarter's end, a total of 46 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards TPX over the last 21 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Is TPX A Good Stock To Buy?
When looking at the institutional investors followed by Insider Monkey, Rehan Jaffer's H Partners Management has the number one position in Tempur Sealy International Inc. (NYSE:TPX), worth close to $263.1 million, amounting to 45.5% of its total 13F portfolio. The second most bullish fund manager is Route One Investment Company, managed by William Duhamel, which holds a $168.9 million position; the fund has 4.4% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish include Gabriel Plotkin's Melvin Capital Management, Ricky Sandler's Eminence Capital and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital. 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 45.48% of its 13F portfolio. Think Investments is also relatively very bullish on the stock, designating 4.89 percent of its 13F equity portfolio to TPX.
Because Tempur Sealy International Inc. (NYSE:TPX) has experienced a decline in interest from the entirety of the hedge funds we track, it's safe to say that there exists a select few hedgies that decided to sell off their positions entirely last quarter. Intriguingly, Anthony Joseph Vaccarino's North Fourth Asset Management dropped the biggest position of all the hedgies followed by Insider Monkey, comprising an estimated $5.2 million in stock. David Einhorn's fund, Greenlight Capital, also dumped its stock, about $5 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's go over hedge fund activity in other stocks similar to Tempur Sealy International Inc. (NYSE:TPX). We will take a look at Performance Food Group Company (NYSE:PFGC), BridgeBio Pharma, Inc. (NASDAQ:BBIO), Zai Lab Limited (NASDAQ:ZLAB), Science Applications International Corp (NYSE:SAIC), Stag Industrial Inc (NYSE:STAG), Hutchison China MediTech Limited (NASDAQ:HCM), and DXC Technology Company (NYSE:DXC). This group of stocks' market values are similar to TPX's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PFGC,29,276923,9 BBIO,13,1527978,-1 ZLAB,28,356502,1 SAIC,21,223187,-14 STAG,19,77620,5 HCM,5,34753,-2 DXC,37,618363,-3 Average,21.7,445047,-0.7 [/table]
As you can see these stocks had an average of 21.7 hedge funds with bullish positions and the average amount invested in these stocks was $445 million. That figure was $1130 million in TPX's case. DXC Technology Company (NYSE:DXC) is the most popular stock in this table. On the other hand Hutchison China MediTech Limited (NASDAQ:HCM) is the least popular one with only 5 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 85. 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 gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. Unfortunately TPX wasn't nearly as popular as these 20 stocks and hedge funds that were betting on TPX were disappointed as the stock returned 10.3% since the end of the third quarter (through 12/8) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
