Does Trinity Industries, Inc. (NYSE:TRN) represent a good buying opportunity at the moment? Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Trinity Industries, Inc. (NYSE:TRN) investors should be aware of a decrease in support from the world’s most elite money managers lately. TRN was in 23 hedge funds’ portfolios at the end of June. There were 28 hedge funds in our database with TRN holdings at the end of the previous quarter. Our calculations also showed that TRN isn’t among the 30 most popular stocks among hedge funds (view video below).
Video: Click the image to 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s review the recent hedge fund action regarding Trinity Industries, Inc. (NYSE:TRN).
What does smart money think about Trinity Industries, Inc. (NYSE:TRN)?
At the end of the second quarter, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from one quarter earlier. By comparison, 31 hedge funds held shares or bullish call options in TRN a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
Among these funds, ValueAct Capital held the most valuable stake in Trinity Industries, Inc. (NYSE:TRN), which was worth $454.4 million at the end of the second quarter. On the second spot was Omega Advisors which amassed $49 million worth of shares. Moreover, D E Shaw, Cardinal Capital, and StackLine Partners were also bullish on Trinity Industries, Inc. (NYSE:TRN), allocating a large percentage of their portfolios to this stock.
Because Trinity Industries, Inc. (NYSE:TRN) has witnessed declining sentiment from the entirety of the hedge funds we track, logic holds that there exists a select few fund managers that elected to cut their positions entirely last quarter. Interestingly, Charles Davidson and Joseph Jacobs’s Wexford Capital said goodbye to the biggest position of the “upper crust” of funds followed by Insider Monkey, totaling close to $15.9 million in stock, and Sara Nainzadeh’s Centenus Global Management was right behind this move, as the fund sold off about $4.4 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 5 funds last quarter.
Let’s go over hedge fund activity in other stocks similar to Trinity Industries, Inc. (NYSE:TRN). These stocks are Brandywine Realty Trust (NYSE:BDN), National General Holdings Corp (NASDAQ:NGHC), Brady Corporation (NYSE:BRC), and Cadence Bancorporation (NYSE:CADE). This group of stocks’ market valuations match TRN’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BDN | 14 | 92127 | -1 |
| NGHC | 18 | 225830 | 0 |
| BRC | 13 | 188953 | -2 |
| CADE | 18 | 149254 | -4 |
| Average | 15.75 | 164041 | -1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $164 million. That figure was $664 million in TRN’s case. National General Holdings Corp (NASDAQ:NGHC) is the most popular stock in this table. On the other hand Brady Corporation (NYSE:BRC) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Trinity Industries, Inc. (NYSE:TRN) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately TRN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on TRN were disappointed as the stock returned -4.3% during the third quarter 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 in Q3.
Disclosure: None. This article was originally published at Insider Monkey.
