Hedge Funds Are Coming Back To Trinity Industries, Inc. (TRN)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Trinity Industries, Inc. (NYSE:TRN) and determine whether the smart money was really smart about this stock.

Is Trinity Industries, Inc. (NYSE:TRN) undervalued? Prominent investors were in a bullish mood. The number of bullish hedge fund bets improved by 7 recently. Trinity Industries, Inc. (NYSE:TRN) was in 25 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 33. Our calculations also showed that TRN isn’t 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). There were 18 hedge funds in our database with TRN holdings at the end of March.

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 58 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.

Jeffrey Ubben of ValueAct 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 stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Now let’s take a peek at the recent hedge fund action encompassing Trinity Industries, Inc. (NYSE:TRN).

How are hedge funds trading Trinity Industries, Inc. (NYSE:TRN)?

At second quarter’s end, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 39% from the first quarter of 2020. On the other hand, there were a total of 23 hedge funds with a bullish position in TRN a year ago. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, ValueAct Capital, managed by Jeffrey Ubben, holds the largest position in Trinity Industries, Inc. (NYSE:TRN). ValueAct Capital has a $575 million position in the stock, comprising 6.6% of its 13F portfolio. The second largest stake is held by Leon Cooperman of Omega Advisors, with a $60.3 million position; the fund has 6.9% of its 13F portfolio invested in the stock. Other professional money managers that are bullish include Amy Minella’s Cardinal Capital, Brian Gootzeit and Andrew Frank’s StackLine Partners and Mario Gabelli’s GAMCO Investors. In terms of the portfolio weights assigned to each position StackLine Partners allocated the biggest weight to Trinity Industries, Inc. (NYSE:TRN), around 11.45% of its 13F portfolio. Omega Advisors is also relatively very bullish on the stock, designating 6.9 percent of its 13F equity portfolio to TRN.

As one would reasonably expect, some big names have jumped into Trinity Industries, Inc. (NYSE:TRN) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the most outsized position in Trinity Industries, Inc. (NYSE:TRN). Arrowstreet Capital had $22.8 million invested in the company at the end of the quarter. Renaissance Technologies also made a $8.6 million investment in the stock during the quarter. The following funds were also among the new TRN investors: Paul Tudor Jones’s Tudor Investment Corp, Noam Gottesman’s GLG Partners, and Donald Sussman’s Paloma Partners.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Trinity Industries, Inc. (NYSE:TRN) but similarly valued. These stocks are Insperity Inc (NYSE:NSP), Taylor Morrison Home Corp (NYSE:TMHC), UMB Financial Corporation (NASDAQ:UMBF), Crocs, Inc. (NASDAQ:CROX), Ovintiv Inc. (NYSE:OVV), Brookfield Business Partners L.P. (NYSE:BBU), and TreeHouse Foods Inc. (NYSE:THS). This group of stocks’ market values resemble TRN’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.6 hedge funds with bullish positions and the average amount invested in these stocks was $240 million. That figure was $825 million in TRN’s case. Crocs, Inc. (NASDAQ:CROX) is the most popular stock in this table. On the other hand Brookfield Business Partners L.P. (NYSE:BBU) is the least popular one with only 3 bullish hedge fund positions. Trinity Industries, Inc. (NYSE:TRN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TRN is 65.1. 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. 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 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 21.3% in 2020 through September 25th and beat the market by 17.7 percentage points. Unfortunately TRN wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on TRN were disappointed as the stock returned -7.9% during the same time period 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 many of these stocks already outperformed the market so far this year.

Disclosure: None. This article was originally published at Insider Monkey.