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In this article we will analyze whether TransAlta Corporation (NYSE:TAC) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.
Is TAC a good stock to buy now? TransAlta Corporation (NYSE:TAC) investors should be aware of an increase in support from the world's most elite money managers lately. TransAlta Corporation (NYSE:TAC) was in 13 hedge funds' portfolios at the end of September. The all time high for this statistic is 15. 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 for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Blair Levinsky of Waratah Capital Advisors
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. Keeping this in mind let's take a peek at the key hedge fund action surrounding TransAlta Corporation (NYSE:TAC).
Do Hedge Funds Think TAC Is A Good Stock To Buy Now?
At Q3's end, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from the previous quarter. By comparison, 7 hedge funds held shares or bullish call options in TAC a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of TransAlta Corporation (NYSE:TAC), with a stake worth $19.3 million reported as of the end of September. Trailing Renaissance Technologies was Arrowstreet Capital, which amassed a stake valued at $18.3 million. Point72 Asset Management, Marshall Wace LLP, and Citadel Investment Group 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 Waratah Capital Advisors allocated the biggest weight to TransAlta Corporation (NYSE:TAC), around 0.23% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, dishing out 0.09 percent of its 13F equity portfolio to TAC.
As industrywide interest jumped, key hedge funds have been driving this bullishness. Point72 Asset Management, managed by Steve Cohen, established the largest position in TransAlta Corporation (NYSE:TAC). Point72 Asset Management had $9.8 million invested in the company at the end of the quarter. Brad Dunkley and Blair Levinsky's Waratah Capital Advisors also made a $2.2 million investment in the stock during the quarter.
Let's also examine hedge fund activity in other stocks similar to TransAlta Corporation (NYSE:TAC). We will take a look at Atlantic Union Bankshares Corporation (NASDAQ:AUB), Repay Holdings Corporation (NASDAQ:RPAY), Dycom Industries, Inc. (NYSE:DY), Sonos, Inc. (NASDAQ:SONO), O-I Glass, Inc. (NYSE:OI), Washington Real Estate Investment Trust (NYSE:WRE), and Revance Therapeutics Inc (NASDAQ:RVNC). This group of stocks' market values match TAC's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AUB,9,34586,-3 RPAY,26,250330,8 DY,16,67971,0 SONO,32,336456,-3 OI,27,254546,2 WRE,13,71057,5 RVNC,13,118943,-1 Average,19.4,161984,1.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.4 hedge funds with bullish positions and the average amount invested in these stocks was $162 million. That figure was $60 million in TAC's case. Sonos, Inc. (NASDAQ:SONO) is the most popular stock in this table. On the other hand Atlantic Union Bankshares Corporation (NASDAQ:AUB) is the least popular one with only 9 bullish hedge fund positions. TransAlta Corporation (NYSE:TAC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for TAC is 40.7. 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. A small number of hedge funds were also right about betting on TAC as the stock returned 17% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.