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Do Hedge Funds Love TravelCenters of America Inc. (TA)?

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Reymerlyn Martin
·6 min read
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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 TravelCenters of America Inc. (NASDAQ:TA)? The smart money sentiment can provide an answer to this question.

TravelCenters of America Inc. (NASDAQ:TA) has experienced an increase in hedge fund sentiment recently. TravelCenters of America Inc. (NASDAQ:TA) was in 12 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistics is 16. Our calculations also showed that TA 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.

Mark Cohen Stone House Capital
Mark Cohen Stone House Capital

Mark Cohen of Stone House Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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 let's analyze the key hedge fund action surrounding TravelCenters of America Inc. (NASDAQ:TA).

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

At the end of September, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 71% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards TA over the last 21 quarters. With the smart money's sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

The largest stake in TravelCenters of America Inc. (NASDAQ:TA) was held by Nantahala Capital Management, which reported holding $25.4 million worth of stock at the end of September. It was followed by SCW Capital Management with a $14.2 million position. Other investors bullish on the company included Renaissance Technologies, Stone House Capital, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position SCW Capital Management allocated the biggest weight to TravelCenters of America Inc. (NASDAQ:TA), around 8.21% of its 13F portfolio. Stone House Capital is also relatively very bullish on the stock, designating 4.88 percent of its 13F equity portfolio to TA.

Consequently, some big names have been driving this bullishness. SCW Capital Management, managed by John R. Wagner, assembled the largest position in TravelCenters of America Inc. (NASDAQ:TA). SCW Capital Management had $14.2 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital also initiated a $3.6 million position during the quarter. The following funds were also among the new TA investors: Israel Englander's Millennium Management, Donald Sussman's Paloma Partners, and Gavin Saitowitz and Cisco J. del Valle's Prelude Capital (previously Springbok Capital).

Let's now review hedge fund activity in other stocks similar to TravelCenters of America Inc. (NASDAQ:TA). We will take a look at Microvision, Inc. (NASDAQ:MVIS), Citizens, Inc. (NYSE:CIA), Oppenheimer Holdings Inc. (NYSE:OPY), Powell Industries, Inc. (NASDAQ:POWL), Jounce Therapeutics, Inc. (NASDAQ:JNCE), Mesabi Trust (NYSE:MSB), and VYNE Therapeutics Inc. (NASDAQ:VYNE). All of these stocks' market caps are similar to TA's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MVIS,2,237,0 CIA,2,2160,0 OPY,10,20369,2 POWL,13,27224,0 JNCE,12,14074,0 MSB,5,37474,0 VYNE,10,54821,-4 Average,7.7,22337,-0.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 7.7 hedge funds with bullish positions and the average amount invested in these stocks was $22 million. That figure was $62 million in TA's case. Powell Industries, Inc. (NASDAQ:POWL) is the most popular stock in this table. On the other hand Microvision, Inc. (NASDAQ:MVIS) is the least popular one with only 2 bullish hedge fund positions. TravelCenters of America Inc. (NASDAQ:TA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TA is 78. 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 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. Hedge funds were also right about betting on TA as the stock returned 71% since the end of Q3 (through 12/8) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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