Smart Money Begins to Cool to Targa Resources Corp (TRGP)

After several tireless days we have finished crunching the numbers from the more than 700 13F filings issued by the successful hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of September 30. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Targa Resources Corp (NYSE:TRGP).

Hedge fund interest in Targa Resources Corp (NYSE:TRGP) shares was flat during the third quarter. This is usually a negative indicator. 30 hedge funds that we track owned the stock on September 30, same as on June 30. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Spectrum Brands Holdings, Inc. (NYSE:SPB), Mercadolibre Inc (NASDAQ:MELI), and AEGON N.V. (ADR) (NYSE:AEG) to gather more data points.

We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

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How have hedgies been trading Targa Resources Corp (NYSE:TRGP)?

At Q3’s end, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, unchanged from the second quarter of 2016. On the other hand, there were a total of 18 hedge funds with a bullish position in TRGP at the beginning of this year, so hedge fund ownership has shot up substantially in 2016. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Israel Englander’s Millennium Management has the most valuable position in Targa Resources Corp (NYSE:TRGP), worth close to $108.8 million. The second largest stake is held by Tide Point Capital, led by Christopher A. Winham, which holds a $76.6 million position; 4.2% of its 13F portfolio is allocated to the stock. Other professional money managers that are bullish encompass James Dondero’s Highland Capital Management, Dmitry Balyasny’s Balyasny Asset Management, and Till Bechtolsheimer’s Arosa Capital Management. We should note that Arosa Capital Management is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Because Targa Resources Corp (NYSE:TRGP) has weathered a decline in interest from the aggregate hedge fund industry, we can see that there were a few fund managers who were dropping their positions entirely in the third quarter. Interestingly, Leon Cooperman’s Omega Advisors cashed in the largest stake of all the hedgies studied by Insider Monkey, worth an estimated $47.3 million in stock, and Tide Point Capital was right behind this move, as the fund dumped about $16.9 million worth of call options underlying shares, while retaining its aforementioned long position.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Targa Resources Corp (NYSE:TRGP) but similarly valued. These stocks are Spectrum Brands Holdings, Inc. (NYSE:SPB), Mercadolibre Inc (NASDAQ:MELI), AEGON N.V. (ADR) (NYSE:AEG), and News Corp (NASDAQ:NWSA). All of these stocks’ market caps resemble TRGP’s market cap.

As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $560 million. That figure was $467 million in TRGP’s case. News Corp (NASDAQ:NWSA) is the most popular stock in this table. On the other hand AEGON N.V. (ADR) (NYSE:AEG) is the least popular one with only 8 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on recently. In this regard SPB and MELI might be better candidates to consider taking long positions in.

Disclosure: None