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How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Tejon Ranch Company (NYSE:TRC) and determine whether hedge funds had an edge regarding this stock.
Tejon Ranch Company (NYSE:TRC) was in 11 hedge funds' portfolios at the end of March. TRC has experienced a decrease in support from the world's most elite money managers of late. There were 14 hedge funds in our database with TRC positions at the end of the previous quarter. Our calculations also showed that TRC isn't among the 30 most popular stocks among hedge funds (click for Q1 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.
In the eyes of most stock holders, hedge funds are viewed as unimportant, outdated investment tools of yesteryear. While there are more than 8000 funds trading today, We look at the masters of this club, around 850 funds. These money managers direct the lion's share of all hedge funds' total asset base, and by tailing their highest performing picks, Insider Monkey has determined various investment strategies that have historically outstripped Mr. Market. Insider Monkey's flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
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Michael Price of MFP Investors[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let's take a look at the key hedge fund action surrounding Tejon Ranch Company (NYSE:TRC).
What have hedge funds been doing with Tejon Ranch Company (NYSE:TRC)?
At the end of the first quarter, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -21% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards TRC over the last 18 quarters. 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 Tejon Ranch Company (NYSE:TRC) was held by Royce & Associates, which reported holding $20.9 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $7.7 million position. Other investors bullish on the company included GAMCO Investors, MFP Investors, and Ariel Investments. In terms of the portfolio weights assigned to each position MFP Investors allocated the biggest weight to Tejon Ranch Company (NYSE:TRC), around 1.3% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, dishing out 0.28 percent of its 13F equity portfolio to TRC.
Since Tejon Ranch Company (NYSE:TRC) has witnessed falling interest from the aggregate hedge fund industry, logic holds that there lies a certain "tier" of fund managers that decided to sell off their entire stakes by the end of the first quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital sold off the biggest stake of the 750 funds tracked by Insider Monkey, valued at an estimated $1 million in stock, and D. E. Shaw's D E Shaw was right behind this move, as the fund cut about $0.4 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 3 funds by the end of the first quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Tejon Ranch Company (NYSE:TRC) but similarly valued. We will take a look at Pope Resources L.P. (NASDAQ:POPE), Avadel Pharmaceuticals plc (NASDAQ:AVDL), Barings BDC, Inc. (NYSE:BBDC), and Peoples Utah Bancorp (NASDAQ:PUB). This group of stocks' market caps match TRC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position POPE,5,4629,3 AVDL,16,112713,6 BBDC,7,16743,-3 PUB,7,12970,1 Average,8.75,36764,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $37 million. That figure was $50 million in TRC's case. Avadel Pharmaceuticals plc (NASDAQ:AVDL) is the most popular stock in this table. On the other hand Pope Resources L.P. (NASDAQ:POPE) is the least popular one with only 5 bullish hedge fund positions. Tejon Ranch Company (NYSE:TRC) 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately TRC wasn't nearly as popular as these 10 stocks and hedge funds that were betting on TRC were disappointed as the stock returned 2.4% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 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.