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Hedge Funds Have Never Been This Bullish On Target Hospitality Corp. (TH)

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 8 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Target Hospitality Corp. (NASDAQ:TH).

Is Target Hospitality Corp. (NASDAQ:TH) a safe investment today? Investors who are in the know are becoming more confident. The number of long hedge fund positions increased by 3 recently. 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 below for Q2 rankings). TH was in 20 hedge funds’ portfolios at the end of the third quarter of 2019. There were 17 hedge funds in our database with TH holdings at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

MOORE GLOBAL INVESTMENTS

Louis Bacon Moore of Moore Capital

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a glance at the latest hedge fund action regarding Target Hospitality Corp. (NASDAQ:TH).

How have hedgies been trading Target Hospitality Corp. (NASDAQ:TH)?

Heading into the fourth quarter of 2019, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in TH over the last 17 quarters. With the smart money’s sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

More specifically, Rubric Capital Management was the largest shareholder of Target Hospitality Corp. (NASDAQ:TH), with a stake worth $17 million reported as of the end of September. Trailing Rubric Capital Management was Private Capital Management, which amassed a stake valued at $16.6 million. Moore Global Investments, Arrowgrass Capital Partners, and Element Capital Management 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 Private Capital Management allocated the biggest weight to Target Hospitality Corp. (NASDAQ:TH), around 2.88% of its 13F portfolio. Rubric Capital Management is also relatively very bullish on the stock, setting aside 1.56 percent of its 13F equity portfolio to TH.

As aggregate interest increased, specific money managers have jumped into Target Hospitality Corp. (NASDAQ:TH) headfirst. Lonestar Capital Management, managed by Jerome L. Simon, assembled the most outsized position in Target Hospitality Corp. (NASDAQ:TH). Lonestar Capital Management had $2.7 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also made a $0.4 million investment in the stock during the quarter. The following funds were also among the new TH investors: David E. Shaw’s D E Shaw and Michael Gelband’s ExodusPoint Capital.

Let’s now take a look at hedge fund activity in other stocks similar to Target Hospitality Corp. (NASDAQ:TH). These stocks are Endo International plc (NASDAQ:ENDP), AdvanSix Inc. (NYSE:ASIX), Kimball International Inc (NASDAQ:KBAL), and C&J Energy Services, Inc (NYSE:CJ). All of these stocks’ market caps match TH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ENDP 19 208550 -2
ASIX 10 114711 -5
KBAL 12 123697 -1
CJ 18 116969 -3
Average 14.75 140982 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $141 million. That figure was $64 million in TH’s case. Endo International plc (NASDAQ:ENDP) is the most popular stock in this table. On the other hand AdvanSix Inc. (NYSE:ASIX) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Target Hospitality Corp. (NASDAQ:TH) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately TH wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on TH were disappointed as the stock returned -30.5% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

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

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