Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is TransAlta Corporation (NYSE:TAC) a buy right now? The best stock pickers are getting less bullish. The number of bullish hedge fund bets were cut by 2 lately. Our calculations also showed that TAC 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.
In today’s marketplace there are a large number of indicators shareholders employ to assess stocks. A duo of the less utilized indicators are hedge fund and insider trading interest. Our researchers have shown that, historically, those who follow the best picks of the best money managers can outpace the market by a solid amount (see the details here).
[caption id="attachment_27676" align="aligncenter" width="355"] Israel Englander of Millennium Management[/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 review the key hedge fund action encompassing TransAlta Corporation (NYSE:TAC).
What does smart money think about TransAlta Corporation (NYSE:TAC)?
At Q3's end, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of -22% from one quarter earlier. On the other hand, there were a total of 9 hedge funds with a bullish position in TAC a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in TransAlta Corporation (NYSE:TAC) was held by Arrowstreet Capital, which reported holding $16 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $12.1 million position. Other investors bullish on the company included Citadel Investment Group, Millennium Management, and Algert Coldiron Investors. In terms of the portfolio weights assigned to each position Algert Coldiron Investors allocated the biggest weight to TransAlta Corporation (NYSE:TAC), around 0.12% of its 13F portfolio. Arrowstreet Capital is also relatively very bullish on the stock, dishing out 0.04 percent of its 13F equity portfolio to TAC.
Seeing as TransAlta Corporation (NYSE:TAC) has experienced declining sentiment from hedge fund managers, logic holds that there were a few hedgies that decided to sell off their positions entirely in the third quarter. Interestingly, John Overdeck and David Siegel's Two Sigma Advisors dumped the largest investment of the 750 funds tracked by Insider Monkey, comprising close to $0.9 million in stock, and Brad Dunkley and Blair Levinsky's Waratah Capital Advisors was right behind this move, as the fund sold off about $0.5 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 2 funds in the third quarter.
Let's check out hedge fund activity in other stocks similar to TransAlta Corporation (NYSE:TAC). We will take a look at Plexus Corp. (NASDAQ:PLXS), InVitae Corporation (NYSE:NVTA), Premier Inc (NASDAQ:PINC), and Allscripts Healthcare Solutions Inc (NASDAQ:MDRX). This group of stocks' market caps are similar to TAC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PLXS,8,58196,0 NVTA,13,325070,-3 PINC,17,166922,1 MDRX,19,184930,1 Average,14.25,183780,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $184 million. That figure was $31 million in TAC's case. Allscripts Healthcare Solutions Inc (NASDAQ:MDRX) is the most popular stock in this table. On the other hand Plexus Corp. (NASDAQ:PLXS) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks TransAlta Corporation (NYSE:TAC) is even less popular than PLXS. Hedge funds dodged a bullet by taking a bearish stance towards TAC. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately TAC wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); TAC investors were disappointed as the stock returned 4.2% 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.