Is Trecora Resources (TREC) A Good Stock To Buy Now?

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Trecora Resources (NYSE:TREC).

Is Trecora Resources (NYSE:TREC) a good stock to buy now? Investors who are in the know were taking a bearish view. The number of long hedge fund bets fell by 3 in recent months. Trecora Resources (NYSE:TREC) was in 6 hedge funds’ portfolios at the end of September. The all time high for this statistics is 10. Our calculations also showed that TREC 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.

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 66 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.

Ken Griffin of Citadel Investment Group

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 let’s go over the new hedge fund action regarding Trecora Resources (NYSE:TREC).

Hedge fund activity in Trecora Resources (NYSE:TREC)

At the end of September, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -33% from the previous quarter. On the other hand, there were a total of 10 hedge funds with a bullish position in TREC a year ago. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

Among these funds, Royce & Associates held the most valuable stake in Trecora Resources (NYSE:TREC), which was worth $7.3 million at the end of the third quarter. On the second spot was Rutabaga Capital Management which amassed $4.1 million worth of shares. Yacktman Asset Management, Brigade Capital, and Renaissance Technologies 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 Rutabaga Capital Management allocated the biggest weight to Trecora Resources (NYSE:TREC), around 2.34% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, setting aside 0.08 percent of its 13F equity portfolio to TREC.

Due to the fact that Trecora Resources (NYSE:TREC) has witnessed bearish sentiment from hedge fund managers, we can see that there were a few money managers who sold off their positions entirely heading into Q4. Interestingly, D. E. Shaw’s D E Shaw sold off the biggest stake of the 750 funds watched by Insider Monkey, valued at about $0.1 million in stock. Ken Griffin’s fund, Citadel Investment Group, also said goodbye to its stock, about $0.1 million worth. These transactions are interesting, as total hedge fund interest dropped by 3 funds heading into Q4.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Trecora Resources (NYSE:TREC) but similarly valued. These stocks are Southern First Bancshares, Inc. (NASDAQ:SFST), Hurco Companies, Inc. (NASDAQ:HURC), RCI Hospitality Holdings, Inc. (NASDAQ:RICK), CompX International Inc. (NYSE:CIX), Perion Network Ltd (NASDAQ:PERI), Liquidia Corporation (NASDAQ:LQDA), and Overseas Shipholding Group, Inc. (NYSE:OSG). This group of stocks’ market caps resemble TREC’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.9 hedge funds with bullish positions and the average amount invested in these stocks was $25 million. That figure was $16 million in TREC’s case. Overseas Shipholding Group, Inc. (NYSE:OSG) is the most popular stock in this table. On the other hand Hurco Companies, Inc. (NASDAQ:HURC) is the least popular one with only 4 bullish hedge fund positions. Trecora Resources (NYSE:TREC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for TREC is 34.3. 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 November 27th and still beat the market by 16.1 percentage points. A small number of hedge funds were also right about betting on TREC as the stock returned 10.4% since the end of the third quarter (through 11/27) and outperformed the market by an even larger margin.

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