While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Trecora Resources (NYSE:TREC).
Trecora Resources (NYSE:TREC) investors should pay attention to an increase in activity from the world's largest hedge funds of late. TREC was in 10 hedge funds' portfolios at the end of the third quarter of 2019. There were 8 hedge funds in our database with TREC holdings at the end of the previous quarter. Our calculations also showed that TREC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). 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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_267751" align="aligncenter" width="450"] Nelson Obus of Wynnefield Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. We're going to take a gander at the latest hedge fund action encompassing Trecora Resources (NYSE:TREC).
What have hedge funds been doing with Trecora Resources (NYSE:TREC)?
At the end of the third quarter, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 25% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards TREC over the last 17 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Royce & Associates, managed by Chuck Royce, holds the biggest position in Trecora Resources (NYSE:TREC). Royce & Associates has a $9.2 million position in the stock, comprising 0.1% of its 13F portfolio. Coming in second is Brigade Capital, led by Don Morgan, holding a $6.2 million position; 0.3% of its 13F portfolio is allocated to the company. Some other peers that are bullish encompass Peter Schliemann's Rutabaga Capital Management, Phil Frohlich's Prescott Group Capital Management and Nelson Obus's Wynnefield Capital. In terms of the portfolio weights assigned to each position Rutabaga Capital Management allocated the biggest weight to Trecora Resources (NYSE:TREC), around 1.8% of its 13F portfolio. Wynnefield Capital is also relatively very bullish on the stock, earmarking 0.38 percent of its 13F equity portfolio to TREC.
Now, key money managers were leading the bulls' herd. Winton Capital Management, managed by David Harding, created the most valuable position in Trecora Resources (NYSE:TREC). Winton Capital Management had $0.2 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also initiated a $0.2 million position during the quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Trecora Resources (NYSE:TREC) but similarly valued. We will take a look at Tailored Brands, Inc. (NYSE:TLRD), Vince Holding Corp (NYSE:VNCE), CRH Medical Corporation (NYSE:CRHM), and Babcock & Wilcox Enterprises Inc (NYSE:BW). All of these stocks' market caps are similar to TREC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TLRD,12,21294,-6 VNCE,3,6052,1 CRHM,6,39884,0 BW,8,35123,-4 Average,7.25,25588,-2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.25 hedge funds with bullish positions and the average amount invested in these stocks was $26 million. That figure was $24 million in TREC's case. Tailored Brands, Inc. (NYSE:TLRD) is the most popular stock in this table. On the other hand Vince Holding Corp (NYSE:VNCE) is the least popular one with only 3 bullish hedge fund positions. Trecora Resources (NYSE:TREC) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately TREC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on TREC were disappointed as the stock returned -14.6% during the fourth quarter (through the end of November) 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 so far this year.
Disclosure: None. This article was originally published at Insider Monkey.