Is Trex Company, Inc. (NYSE:TREX) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before doing days of research on it. Given their 2 and 20 payment structure, hedge funds have more resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also have 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 Trex Company, Inc. (NYSE:TREX) an exceptional investment now? Investors who are in the know are becoming hopeful. The number of long hedge fund bets improved by 5 lately. Our calculations also showed that TREX isn’t among the 30 most popular stocks among hedge funds.
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 18 percentage points since May 2014 through December 3, 2018 (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.
We’re going to take a gander at the fresh hedge fund action surrounding Trex Company, Inc. (NYSE:TREX).
What does the smart money think about Trex Company, Inc. (NYSE:TREX)?
At the end of the third quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 42% from the second quarter of 2018. By comparison, 15 hedge funds held shares or bullish call options in TREX heading into this year. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Jim Simons’s Renaissance Technologies has the most valuable position in Trex Company, Inc. (NYSE:TREX), worth close to $22.7 million, corresponding to less than 0.1%% of its total 13F portfolio. The second largest stake is held by Eduardo Abush of Waterfront Capital Partners, with a $15 million position; 2% of its 13F portfolio is allocated to the stock. Remaining peers that are bullish include Ken Grossman and Glen Schneider’s SG Capital Management, John Osterweis’s Osterweis Capital Management and Louis Navellier’s Navellier & Associates.
Now, specific money managers have jumped into Trex Company, Inc. (NYSE:TREX) headfirst. SG Capital Management, managed by Ken Grossman and Glen Schneider, created the most outsized position in Trex Company, Inc. (NYSE:TREX). SG Capital Management had $9.1 million invested in the company at the end of the quarter. Matthew Hulsizer’s PEAK6 Capital Management also initiated a $1.7 million position during the quarter. The following funds were also among the new TREX investors: Steve Cohen’s Point72 Asset Management, D. E. Shaw’s D E Shaw, and Matthew Tewksbury’s Stevens Capital Management.
Let’s now review hedge fund activity in other stocks similar to Trex Company, Inc. (NYSE:TREX). These stocks are Cameco Corporation (NYSE:CCJ), Oasis Petroleum Inc. (NYSE:OAS), Pilgrim’s Pride Corporation (NASDAQ:PPC), and Teradata Corporation (NYSE:TDC). All of these stocks’ market caps match TREX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CCJ | 19 | 291752 | -2 |
| OAS | 33 | 940108 | 6 |
| PPC | 16 | 105876 | 2 |
| TDC | 23 | 254471 | 2 |
| Average | 22.75 | 398052 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $398 million. That figure was $69 million in TREX’s case. Oasis Petroleum Inc. (NYSE:OAS) is the most popular stock in this table. On the other hand Pilgrim’s Pride Corporation (NASDAQ:PPC) is the least popular one with only 16 bullish hedge fund positions. Trex Company, Inc. (NYSE:TREX) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard OAS might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
