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Did Hedge Funds Drop The Ball On Talos Energy, Inc. (TALO)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 700 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider Talos Energy, Inc. (NYSE:TALO) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.

Is Talos Energy, Inc. (NYSE:TALO) a cheap stock to buy now? The smart money is selling. The number of bullish hedge fund positions dropped by 1 lately. Our calculations also showed that talo isn’t among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

D. E. Shaw

We’re going to analyze the fresh hedge fund action surrounding Talos Energy, Inc. (NYSE:TALO).

Hedge fund activity in Talos Energy, Inc. (NYSE:TALO)

Heading into the first quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in TALO over the last 14 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with TALO Positions

The largest stake in Talos Energy, Inc. (NYSE:TALO) was held by Encompass Capital Advisors, which reported holding $27.9 million worth of stock at the end of December. It was followed by Royce & Associates with a $11.4 million position. Other investors bullish on the company included Renaissance Technologies, Millennium Management, and D E Shaw.

Since Talos Energy, Inc. (NYSE:TALO) has faced declining sentiment from the smart money, logic holds that there lies a certain “tier” of funds who sold off their positions entirely last quarter. At the top of the heap, John Labanowski’s Brenham Capital Management dropped the largest stake of the “upper crust” of funds monitored by Insider Monkey, worth an estimated $13.8 million in stock, and Arvind Sanger’s GeoSphere Capital Management was right behind this move, as the fund sold off about $3 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 1 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to Talos Energy, Inc. (NYSE:TALO). We will take a look at Marten Transport, Ltd (NASDAQ:MRTN), Cray Inc. (NASDAQ:CRAY), CONSOL Energy Inc. (NYSE:CEIX), and ScanSource, Inc. (NASDAQ:SCSC). This group of stocks’ market caps are closest to TALO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MRTN 17 44100 3
CRAY 14 62131 1
CEIX 25 123293 6
SCSC 12 50297 4
Average 17 69955 3.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $70 million. That figure was $53 million in TALO’s case. CONSOL Energy Inc. (NYSE:CEIX) is the most popular stock in this table. On the other hand ScanSource, Inc. (NASDAQ:SCSC) is the least popular one with only 12 bullish hedge fund positions. Talos Energy, Inc. (NYSE:TALO) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on TALO as the stock returned 82.7% and outperformed the market by an even larger margin.

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

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