Is TRGP A Good Stock To Buy According To Hedge Funds?

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks aren’t doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to Targa Resources Corp (NYSE:TRGP) changed recently.

Is TRGP a good stock to buy? Targa Resources Corp (NYSE:TRGP) was in 30 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 35. TRGP investors should pay attention to a decrease in hedge fund sentiment in recent months. There were 31 hedge funds in our database with TRGP positions at the end of the second quarter. Our calculations also showed that TRGP 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Overdeck of Two Sigma Advisors

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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 go over the latest hedge fund action encompassing Targa Resources Corp (NYSE:TRGP).

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

At third quarter’s end, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -3% from the second quarter of 2020. By comparison, 18 hedge funds held shares or bullish call options in TRGP a year ago. With the smart money’s capital changing hands, there exists a few key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

The largest stake in Targa Resources Corp (NYSE:TRGP) was held by Point72 Asset Management, which reported holding $40.6 million worth of stock at the end of September. It was followed by Deep Basin Capital with a $40.1 million position. Other investors bullish on the company included Renaissance Technologies, Arrowstreet Capital, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Deep Basin Capital allocated the biggest weight to Targa Resources Corp (NYSE:TRGP), around 4.91% of its 13F portfolio. SIR Capital Management is also relatively very bullish on the stock, earmarking 2.47 percent of its 13F equity portfolio to TRGP.

Judging by the fact that Targa Resources Corp (NYSE:TRGP) has experienced bearish sentiment from the entirety of the hedge funds we track, we can see that there were a few money managers that elected to cut their positions entirely by the end of the third quarter. It’s worth mentioning that Dmitry Balyasny’s Balyasny Asset Management said goodbye to the largest position of all the hedgies followed by Insider Monkey, comprising about $4.1 million in stock. Greg Poole’s fund, Echo Street Capital Management, also cut its stock, about $1.6 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 1 funds by the end of the third quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Targa Resources Corp (NYSE:TRGP) but similarly valued. We will take a look at AerCap Holdings N.V. (NYSE:AER), Insmed Incorporated (NASDAQ:INSM), Equity Commonwealth (NYSE:EQC), Gates Industrial Corporation plc (NYSE:GTES), Marathon Oil Corporation (NYSE:MRO), Blackstone Mortgage Trust Inc (NYSE:BXMT), and Quaker Chemical Corp (NYSE:KWR). All of these stocks’ market caps resemble TRGP’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.7 hedge funds with bullish positions and the average amount invested in these stocks was $277 million. That figure was $295 million in TRGP’s case. AerCap Holdings N.V. (NYSE:AER) is the most popular stock in this table. On the other hand Gates Industrial Corporation plc (NYSE:GTES) is the least popular one with only 14 bullish hedge fund positions. Targa Resources Corp (NYSE:TRGP) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TRGP is 63. 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 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. Hedge funds were also right about betting on TRGP as the stock returned 93.3% since the end of Q3 (through 12/18) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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