Do Hedge Funds Love Trex Company, Inc. (TREX)?

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. The Standard and Poor’s 500 Index returned 5.2% over the 12-month period ending October 30, while more than 51% of the constituents of the index underperformed the benchmark. Hence, a random stock picking process will most likely lead to disappointment. At the same time, the 30 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey (as of September 2014) generated a return of 9.5% over the same time span, with 63% of these stocks outperforming the benchmark. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Trex Company, Inc. (NYSE:TREX).

Is Trex Company, Inc. (NYSE:TREX) a buy right now? The smart money is betting on the stock. The number of bullish hedge fund positions improved by 4 lately. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Amkor Technology, Inc. (NASDAQ:AMKR), Opus Bank (NASDAQ:OPB), and Envestnet Inc (NYSE:ENV) to gather more data points.

With all of this in mind, let’s take a look at the recent action surrounding Trex Company, Inc. (NYSE:TREX).

What have hedge funds been doing with Trex Company, Inc. (NYSE:TREX)?

Heading into Q4, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 33% from one quarter earlier. With the smart money’s capital changing hands, there exists a few key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Millennium Management, managed by Israel Englander, holds the most valuable position in Trex Company, Inc. (NYSE:TREX). Millennium Management has an $45.2 million position in the stock, comprising 0.1% of its 13F portfolio. The second most bullish fund manager is Citadel Investment Group, led by Ken Griffin, holding an $25.2 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining peers with similar optimism encompass Eduardo Abush’s Waterfront Capital Partners, Jim Simons’s Renaissance Technologies and Van Schreiber’s Bennett Lawrence Management.

Consequently, key money managers were leading the bulls’ herd. Millennium Management, managed by Israel Englander, created the biggest position in Trex Company, Inc. (NYSE:TREX). Millennium Management had $45.2 million invested in the company at the end of the quarter. Michael Platt and William Reeves’s BlueCrest Capital Mgmt. also initiated an $0.6 million position during the quarter. The other funds with new positions in the stock are Paul Marshall and Ian Wace’s Marshall Wace LLP, John Overdeck and David Siegel’s Two Sigma Advisors, and Paul Tudor Jones’s Tudor Investment Corp.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Trex Company, Inc. (NYSE:TREX) but similarly valued. These stocks are Amkor Technology, Inc. (NASDAQ:AMKR), Opus Bank (NASDAQ:OPB), Envestnet Inc (NYSE:ENV), and Seacor Holdings, Inc. (NYSE:CKH). All of these stocks’ market caps are closest to TREX’s market cap.

As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $219 million. That figure was $105 million in TREX’s case. Amkor Technology, Inc. (NASDAQ:AMKR) is the most popular stock in this table. On the other hand Seacor Holdings, Inc. (NYSE:CKH) is the least popular one with only 12 bullish hedge fund positions. Trex Company, Inc. (NYSE:TREX) 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. In this regard AMKR might be a better candidate to consider a long position.