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Hedge Funds Are Crazy About Turning Point Brands, Inc. (TPB)

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Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Turning Point Brands, Inc. (NYSE:TPB)? The smart money sentiment can provide an answer to this question.

Is Turning Point Brands, Inc. (NYSE:TPB) a good investment today? The smart money was betting on the stock. The number of long hedge fund bets increased by 5 lately. Turning Point Brands, Inc. (NYSE:TPB) was in 30 hedge funds' portfolios at the end of June. The all time high for this statistic was previously 25. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that TPB isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 25 hedge funds in our database with TPB positions at the end of the first quarter.

In the financial world there are a lot of gauges market participants employ to value stocks. Two of the less utilized gauges are hedge fund and insider trading indicators. Our experts have shown that, historically, those who follow the best picks of the best fund managers can trounce the market by a significant amount (see the details here). Also, our monthly newsletter's portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

Justin John Ferayorni - Tamarack Capital Management
Justin John Ferayorni - Tamarack Capital Management

Justin John Ferayorni of Tamarack Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind we're going to take a peek at the recent hedge fund action encompassing Turning Point Brands, Inc. (NYSE:TPB).

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

At Q2's end, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of 20% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in TPB over the last 24 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

More specifically, DG Capital Management was the largest shareholder of Turning Point Brands, Inc. (NYSE:TPB), with a stake worth $19.7 million reported as of the end of June. Trailing DG Capital Management was Millennium Management, which amassed a stake valued at $19.7 million. Tamarack Capital Management, Steamboat Capital Partners, and No Street Capital 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 Tamarack Capital Management allocated the biggest weight to Turning Point Brands, Inc. (NYSE:TPB), around 5.19% of its 13F portfolio. Billings Capital Management is also relatively very bullish on the stock, earmarking 5.04 percent of its 13F equity portfolio to TPB.

With a general bullishness amongst the heavyweights, some big names have jumped into Turning Point Brands, Inc. (NYSE:TPB) headfirst. Steamboat Capital Partners, managed by Parsa Kiai, created the most outsized position in Turning Point Brands, Inc. (NYSE:TPB). Steamboat Capital Partners had $13.8 million invested in the company at the end of the quarter. Eric F. Billings's Billings Capital Management also initiated a $4 million position during the quarter. The other funds with brand new TPB positions are Nick Thakore's Diametric Capital, Gavin Saitowitz and Cisco J. del Valle's Prelude Capital (previously Springbok Capital), and Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Turning Point Brands, Inc. (NYSE:TPB) but similarly valued. We will take a look at PyroGenesis Canada Inc. (NASDAQ:PYR), Arch Resources, Inc. (NYSE:ARCH), The Geo Group, Inc. (NYSE:GEO), A10 Networks Inc (NYSE:ATEN), HomeStreet Inc (NASDAQ:HMST), HEXO Corp. (NASDAQ:HEXO), and Earthstone Energy, Inc. (NYSE:ESTE). This group of stocks' market caps match TPB's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PYR,1,666,-2 ARCH,28,276702,3 GEO,15,74572,2 ATEN,14,159941,-1 HMST,16,49280,4 HEXO,6,29137,0 ESTE,9,23792,1 Average,12.7,87727,1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.7 hedge funds with bullish positions and the average amount invested in these stocks was $88 million. That figure was $168 million in TPB's case. Arch Resources, Inc. (NYSE:ARCH) is the most popular stock in this table. On the other hand PyroGenesis Canada Inc. (NASDAQ:PYR) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Turning Point Brands, Inc. (NYSE:TPB) is more popular among hedge funds. Our overall hedge fund sentiment score for TPB is 90. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks returned 24.9% in 2021 through October 15th but still managed to beat the market by 4.5 percentage points. Hedge funds were also right about betting on TPB as the stock returned 4.9% since the end of June (through 10/15) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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