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While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 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 Target Hospitality Corp. (NASDAQ:TH).
Is TH a good stock to buy now? Target Hospitality Corp. (NASDAQ:TH) shareholders have witnessed a decrease in hedge fund sentiment of late. Target Hospitality Corp. (NASDAQ:TH) was in 13 hedge funds' portfolios at the end of September. The all time high for this statistic is 21. There were 15 hedge funds in our database with TH positions at the end of the second quarter. Our calculations also showed that TH 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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'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.
Louis Bacon Moore of Moore 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. With all of this in mind let's view the fresh hedge fund action encompassing Target Hospitality Corp. (NASDAQ:TH).
Do Hedge Funds Think TH Is A Good Stock To Buy Now?
At third quarter's end, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from the previous quarter. On the other hand, there were a total of 21 hedge funds with a bullish position in TH a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Target Hospitality Corp. (NASDAQ:TH) was held by Private Capital Management, which reported holding $5.8 million worth of stock at the end of September. It was followed by Millennium Management with a $5.1 million position. Other investors bullish on the company included Moore Global Investments, Element Capital Management, and Alyeska Investment Group. In terms of the portfolio weights assigned to each position Private Capital Management allocated the biggest weight to Target Hospitality Corp. (NASDAQ:TH), around 1.33% of its 13F portfolio. Element Capital Management is also relatively very bullish on the stock, earmarking 0.2 percent of its 13F equity portfolio to TH.
Due to the fact that Target Hospitality Corp. (NASDAQ:TH) has witnessed a decline in interest from hedge fund managers, logic holds that there were a few fund managers that slashed their positions entirely in the third quarter. It's worth mentioning that John M. Angelo and Michael L. Gordon's Angelo Gordon & Co dropped the biggest position of all the hedgies watched by Insider Monkey, worth close to $0.3 million in stock. Ken Griffin's fund, Citadel Investment Group, also sold off its stock, about $0.1 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 2 funds in the third quarter.
Let's now take a look at hedge fund activity in other stocks similar to Target Hospitality Corp. (NASDAQ:TH). These stocks are Tyme Technologies, Inc. (NASDAQ:TYME), VivoPower International PLC (NASDAQ:VVPR), Global Ship Lease, Inc. (NYSE:GSL), Unity Bancorp, Inc. (NASDAQ:UNTY), The Bank of Princeton (NASDAQ:BPRN), Middlefield Banc Corp. (NASDAQ:MBCN), and Capital Product Partners L.P. (NASDAQ:CPLP). This group of stocks' market values resemble TH's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TYME,3,4087,-3 VVPR,2,3202,1 GSL,3,13492,-1 UNTY,7,15357,2 BPRN,2,8608,0 MBCN,3,11381,0 CPLP,4,975,1 Average,3.4,8157,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 3.4 hedge funds with bullish positions and the average amount invested in these stocks was $8 million. That figure was $8 million in TH's case. Unity Bancorp, Inc. (NASDAQ:UNTY) is the most popular stock in this table. On the other hand VivoPower International PLC (NASDAQ:VVPR) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Target Hospitality Corp. (NASDAQ:TH) is more popular among hedge funds. Our overall hedge fund sentiment score for TH is 71.6. 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 returned 32.9% in 2020 through December 8th but still managed to beat the market by 16.2 percentage points. Hedge funds were also right about betting on TH as the stock returned 52.5% since the end of September (through 12/8) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.