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Is TCBI A Good Stock To Buy Now?

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·6 min read
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In this article we will check out the progression of hedge fund sentiment towards Texas Capital Bancshares Inc (NASDAQ:TCBI) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is TCBI a good stock to buy now? Texas Capital Bancshares Inc (NASDAQ:TCBI) investors should pay attention to a decrease in enthusiasm from smart money in recent months. Texas Capital Bancshares Inc (NASDAQ:TCBI) was in 20 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 26. There were 21 hedge funds in our database with TCBI positions at the end of the second quarter. Our calculations also showed that TCBI 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 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 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.

Ryan Tolkin, CIO of Schonfeld Strategic 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. With all of this in mind we're going to view the key hedge fund action regarding Texas Capital Bancshares Inc (NASDAQ:TCBI).

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

At Q3's end, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in TCBI over the last 21 quarters. With hedgies' capital changing hands, there exists an "upper tier" of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

According to Insider Monkey's hedge fund database, D. E. Shaw's D E Shaw has the most valuable position in Texas Capital Bancshares Inc (NASDAQ:TCBI), worth close to $24.3 million, comprising less than 0.1%% of its total 13F portfolio. Coming in second is Azora Capital, managed by Ravi Chopra, which holds a $14.9 million position; 1.9% of its 13F portfolio is allocated to the stock. Other professional money managers that hold long positions consist of Israel Englander's Millennium Management, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and Renaissance Technologies. In terms of the portfolio weights assigned to each position Voleon Capital allocated the biggest weight to Texas Capital Bancshares Inc (NASDAQ:TCBI), around 2.66% of its 13F portfolio. Azora Capital is also relatively very bullish on the stock, dishing out 1.87 percent of its 13F equity portfolio to TCBI.

Judging by the fact that Texas Capital Bancshares Inc (NASDAQ:TCBI) has witnessed falling interest from the entirety of the hedge funds we track, logic holds that there exists a select few funds that decided to sell off their entire stakes in the third quarter. Intriguingly, Anand Parekh's Alyeska Investment Group dumped the biggest position of all the hedgies tracked by Insider Monkey, comprising about $10 million in stock. Steven Clark's fund, Omni Partners, also dropped its stock, about $1.9 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 1 funds in the third quarter.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Texas Capital Bancshares Inc (NASDAQ:TCBI) but similarly valued. These stocks are Paramount Group Inc (NYSE:PGRE), Boise Cascade Co (NYSE:BCC), Liberty Latin America Ltd. (NASDAQ:LILAK), Verra Mobility Corporation (NASDAQ:VRRM), Cardiovascular Systems Inc (NASDAQ:CSII), BioTelemetry, Inc. (NASDAQ:BEAT), and Rambus Inc. (NASDAQ:RMBS). This group of stocks' market caps resemble TCBI's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PGRE,17,125514,-4 BCC,25,65613,12 LILAK,28,313011,1 VRRM,19,220734,-6 CSII,22,155492,2 BEAT,17,88893,1 RMBS,19,167579,1 Average,21,162405,1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $162 million. That figure was $99 million in TCBI's case. Liberty Latin America Ltd. (NASDAQ:LILAK) is the most popular stock in this table. On the other hand Paramount Group Inc (NYSE:PGRE) is the least popular one with only 17 bullish hedge fund positions. Texas Capital Bancshares Inc (NASDAQ:TCBI) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for TCBI 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 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on TCBI as the stock returned 84.1% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.

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

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