In this article we will check out the progression of hedge fund sentiment towards Transocean Ltd (NYSE:RIG) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is RIG a good stock to buy now? Transocean Ltd (NYSE:RIG) investors should be aware of a decrease in activity from the world’s largest hedge funds in recent months. Transocean Ltd (NYSE:RIG) was in 17 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 42. Our calculations also showed that RIG isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Marc Lasry of Avenue Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Now we’re going to take a glance at the recent hedge fund action surrounding Transocean Ltd (NYSE:RIG).
Do Hedge Funds Think RIG Is A Good Stock To Buy Now?
At Q3’s end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -19% from the second quarter of 2020. By comparison, 39 hedge funds held shares or bullish call options in RIG a year ago. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
The largest stake in Transocean Ltd (NYSE:RIG) was held by Avenue Capital, which reported holding $5.4 million worth of stock at the end of September. It was followed by Two Sigma Advisors with a $4.1 million position. Other investors bullish on the company included Millennium Management, Arrowstreet Capital, and Tensile Capital. In terms of the portfolio weights assigned to each position Avenue Capital allocated the biggest weight to Transocean Ltd (NYSE:RIG), around 3.49% of its 13F portfolio. Tensile Capital is also relatively very bullish on the stock, designating 0.31 percent of its 13F equity portfolio to RIG.
Judging by the fact that Transocean Ltd (NYSE:RIG) has faced declining sentiment from the entirety of the hedge funds we track, we can see that there were a few hedgies who sold off their positions entirely last quarter. Intriguingly, Mike Masters’s Masters Capital Management said goodbye to the biggest stake of the 750 funds followed by Insider Monkey, valued at an estimated $9.2 million in stock. Don Morgan’s fund, Brigade Capital, also sold off its stock, about $3.4 million worth. These moves are interesting, as total hedge fund interest was cut by 4 funds last quarter.
Let’s also examine hedge fund activity in other stocks similar to Transocean Ltd (NYSE:RIG). We will take a look at Bryn Mawr Bank Corp. (NASDAQ:BMTC), Ichor Holdings Ltd. (NASDAQ:ICHR), MeiraGTx Holdings plc (NASDAQ:MGTX), ProSight Global, Inc. (NYSE:PROS), Enova International Inc (NYSE:ENVA), Clean Energy Fuels Corp (NASDAQ:CLNE), and CEL-SCI Corporation (NYSE:CVM). This group of stocks’ market values are similar to RIG’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BMTC | 13 | 31872 | 1 |
| ICHR | 13 | 32135 | -3 |
| MGTX | 14 | 174914 | -4 |
| PROS | 11 | 10199 | 7 |
| ENVA | 23 | 118896 | 2 |
| CLNE | 11 | 16640 | 0 |
| CVM | 5 | 13243 | -1 |
| Average | 12.9 | 56843 | 0.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.9 hedge funds with bullish positions and the average amount invested in these stocks was $57 million. That figure was $25 million in RIG’s case. Enova International Inc (NYSE:ENVA) is the most popular stock in this table. On the other hand CEL-SCI Corporation (NYSE:CVM) is the least popular one with only 5 bullish hedge fund positions. Transocean Ltd (NYSE:RIG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for RIG is 46.5. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on RIG as the stock returned 201.2% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Follow Transocean Ltd. (NYSE:RIG)
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Disclosure: None. This article was originally published at Insider Monkey.
