We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Tejon Ranch Co. (NYSE:TRC).
Is Tejon Ranch Co. (NYSE:TRC) a bargain? Money managers are becoming more confident. The number of bullish hedge fund positions improved by 2 in recent months. Our calculations also showed that TRC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Martin Whitman of Third Avenue Management
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We’re going to view the fresh hedge fund action encompassing Tejon Ranch Co. (NYSE:TRC).
What does smart money think about Tejon Ranch Co. (NYSE:TRC)?
At the end of the third quarter, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from the second quarter of 2019. On the other hand, there were a total of 10 hedge funds with a bullish position in TRC a year ago. With hedge funds’ capital changing hands, there exists a few notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
More specifically, Royce & Associates was the largest shareholder of Tejon Ranch Co. (NYSE:TRC), with a stake worth $25.5 million reported as of the end of September. Trailing Royce & Associates was Third Avenue Management, which amassed a stake valued at $11.6 million. GAMCO Investors, Renaissance Technologies, and MFP Investors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position MFP Investors allocated the biggest weight to Tejon Ranch Co. (NYSE:TRC), around 1.07% of its 13F portfolio. Third Avenue Management is also relatively very bullish on the stock, earmarking 1.05 percent of its 13F equity portfolio to TRC.
As one would reasonably expect, some big names were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the most valuable position in Tejon Ranch Co. (NYSE:TRC). Arrowstreet Capital had $0.9 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $0.4 million investment in the stock during the quarter. The only other fund with a new position in the stock is David Harding’s Winton Capital Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Tejon Ranch Co. (NYSE:TRC) but similarly valued. We will take a look at CVR Partners LP (NYSE:UAN), Replimune Group, Inc. (NASDAQ:REPL), Ares Commercial Real Estate Corporation (NYSE:ACRE), and Domo Inc. (NASDAQ:DOMO). All of these stocks’ market caps are similar to TRC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| UAN | 4 | 44172 | 0 |
| REPL | 5 | 68148 | -1 |
| ACRE | 10 | 20541 | -3 |
| DOMO | 14 | 94401 | 0 |
| Average | 8.25 | 56816 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.25 hedge funds with bullish positions and the average amount invested in these stocks was $57 million. That figure was $74 million in TRC’s case. Domo Inc. (NASDAQ:DOMO) is the most popular stock in this table. On the other hand CVR Partners LP (NYSE:UAN) is the least popular one with only 4 bullish hedge fund positions. Tejon Ranch Co. (NYSE:TRC) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately TRC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on TRC were disappointed as the stock returned -3.1% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
