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 T-Mobile US, Inc. (NASDAQ:TMUS) and determine whether hedge funds had an edge regarding this stock.
T-Mobile US, Inc. (NASDAQ:TMUS) investors should pay attention to a sharp increase in activity from the world's largest hedge funds recently. Hedge fund sentiment towards the stock is at its all time high. Our calculations also showed that TMUS ranked #14 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.
To the average investor there are plenty of tools shareholders use to size up stocks. Two of the most useful tools are hedge fund and insider trading interest. Our researchers have shown that, historically, those who follow the best picks of the elite money managers can trounce the broader indices by a superb margin (see the details here).
DUQUESNE CAPITAL
Stanley Druckenmiller of Duquesne Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out ideas like this under-the-radar stock to identify the next tenbagger. Currently, investors are pessimistic about commercial real estate investments. So, we are checking out this contrarian play to diversify our market exposure. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now let's review the fresh hedge fund action regarding T-Mobile US, Inc. (NASDAQ:TMUS).
What does smart money think about T-Mobile US, Inc. (NASDAQ:TMUS)?
At the end of the second quarter, a total of 113 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 74% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in TMUS over the last 20 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Ken Griffin's Citadel Investment Group has the biggest position in T-Mobile US, Inc. (NASDAQ:TMUS), worth close to $706.1 million, amounting to 0.3% of its total 13F portfolio. The second largest stake is held by Appaloosa Management LP, led by David Tepper, holding a $614.5 million position; 10.7% of its 13F portfolio is allocated to the company. Other members of the smart money with similar optimism include Renaissance Technologies, John Armitage's Egerton Capital Limited and Andreas Halvorsen's Viking Global. In terms of the portfolio weights assigned to each position Element Capital Management allocated the biggest weight to T-Mobile US, Inc. (NASDAQ:TMUS), around 26.15% of its 13F portfolio. Crake Asset Management is also relatively very bullish on the stock, dishing out 13.28 percent of its 13F equity portfolio to TMUS.
Now, key money managers were breaking ground themselves. Egerton Capital Limited, managed by John Armitage, assembled the most outsized position in T-Mobile US, Inc. (NASDAQ:TMUS). Egerton Capital Limited had $437.5 million invested in the company at the end of the quarter. Farallon Capital also made a $360.1 million investment in the stock during the quarter. The following funds were also among the new TMUS investors: Simon Sadler's Segantii Capital, Stanley Druckenmiller's Duquesne Capital, and Robert Pitts's Steadfast Capital Management.
Let's now review hedge fund activity in other stocks similar to T-Mobile US, Inc. (NASDAQ:TMUS). We will take a look at Altria Group Inc (NYSE:MO), Mondelez International Inc (NASDAQ:MDLZ), HDFC Bank Limited (NYSE:HDB), General Electric Company (NYSE:GE), American Express Company (NYSE:AXP), BlackRock, Inc. (NYSE:BLK), and Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF). This group of stocks' market values are similar to TMUS's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MO,43,1289543,-3 MDLZ,54,2594722,0 HDB,42,1177218,4 GE,57,3186232,-1 AXP,54,17635296,-3 BLK,37,702091,-1 KOF,5,358015,-2 Average,41.7,3849017,-0.9 [/table]
As you can see these stocks had an average of 41.7 hedge funds with bullish positions and the average amount invested in these stocks was $3849 million. That figure was $7158 million in TMUS's case. General Electric Company (NYSE:GE) is the most popular stock in this table. On the other hand Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks T-Mobile US, Inc. (NASDAQ:TMUS) is more popular among hedge funds. Our overall hedge fund sentiment score for TMUS is 93.5. 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 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 gained 28.2% in 2020 through August 24th and still beat the market by 20.6 percentage points. Unfortunately TMUS wasn't nearly as popular as these 10 stocks and hedge funds that were betting on TMUS were disappointed as the stock returned 10.7% since the end of the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
