Hedge Funds Are Crazy About Trinity Industries, Inc. (TRN)

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Trinity Industries, Inc. (NYSE:TRN).

Is Trinity Industries, Inc. (NYSE:TRN) a healthy stock for your portfolio? The best stock pickers were taking an optimistic view. The number of long hedge fund positions went up by 6 lately. Trinity Industries, Inc. (NYSE:TRN) was in 28 hedge funds’ portfolios at the end of March. The all time high for this statistic is 33. Our calculations also showed that TRN isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Leon Cooperman of Omega Advisors

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, economists warn of inflation flare up. So, we are checking out this backdoor gold play that has hit peak gains of 718% in a little over a year. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind we’re going to take a gander at the latest hedge fund action encompassing Trinity Industries, Inc. (NYSE:TRN).

Do Hedge Funds Think TRN Is A Good Stock To Buy Now?

At the end of March, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of 27% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards TRN over the last 23 quarters. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

The largest stake in Trinity Industries, Inc. (NYSE:TRN) was held by ValueAct Capital, which reported holding $658.3 million worth of stock at the end of December. It was followed by Omega Advisors with a $61.2 million position. Other investors bullish on the company included Cardinal Capital, StackLine Partners, and 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 10.06% of its 13F portfolio. ValueAct Capital is also relatively very bullish on the stock, dishing out 7.68 percent of its 13F equity portfolio to TRN.

As aggregate interest increased, specific money managers have jumped into Trinity Industries, Inc. (NYSE:TRN) headfirst. CaaS Capital, managed by Frank Fu, established the most valuable position in Trinity Industries, Inc. (NYSE:TRN). CaaS Capital had $30 million invested in the company at the end of the quarter. Jeffrey Talpins’s Element Capital Management also made a $6.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Dmitry Balyasny’s Balyasny Asset Management, Michael Gelband’s ExodusPoint Capital, and Alexander Mitchell’s Scopus Asset Management.

Let’s go over hedge fund activity in other stocks similar to Trinity Industries, Inc. (NYSE:TRN). These stocks are Empire State Realty OP, L.P. (NYSE:ESBA), Cohen & Steers, Inc. (NYSE:CNS), Evoqua Water Technologies Corp. (NYSE:AQUA), United States Cellular Corporation (NYSE:USM), Sprouts Farmers Market Inc (NASDAQ:SFM), SSR Mining Inc. (NASDAQ:SSRM), and Rent-A-Center Inc (NASDAQ:RCII). 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 16.3 hedge funds with bullish positions and the average amount invested in these stocks was $226 million. That figure was $988 million in TRN’s case. Rent-A-Center Inc (NASDAQ:RCII) is the most popular stock in this table. On the other hand Empire State Realty OP, L.P. (NYSE:ESBA) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Trinity Industries, Inc. (NYSE:TRN) is more popular among hedge funds. Our overall hedge fund sentiment score for TRN is 85.5. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through July 9th and still beat the market by 6.7 percentage points. Unfortunately TRN wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on TRN were disappointed as the stock returned -5.3% since the end of the first quarter (through 7/9) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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

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