We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind let’s see whether Texas Pacific Land Trust (NYSE:TPL) represents a good buying opportunity at the moment. Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Is Texas Pacific Land Trust (NYSE:TPL) undervalued? Investors who are in the know are buying. The number of bullish hedge fund positions went up by 5 lately. Our calculations also showed that TPL isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
According to most shareholders, hedge funds are assumed to be unimportant, old financial vehicles of yesteryear. While there are more than 8000 funds trading at the moment, Our researchers hone in on the moguls of this group, around 850 funds. These hedge fund managers preside over bulk of the hedge fund industry’s total asset base, and by keeping track of their first-class investments, Insider Monkey has come up with various investment strategies that have historically defeated the broader indices. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Noam Gottesman of GLG Partners
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a look at the new hedge fund action surrounding Texas Pacific Land Trust (NYSE:TPL).
Hedge fund activity in Texas Pacific Land Trust (NYSE:TPL)
At Q4’s end, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 42% from one quarter earlier. On the other hand, there were a total of 13 hedge funds with a bullish position in TPL a year ago. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
The largest stake in Texas Pacific Land Trust (NYSE:TPL) was held by Horizon Asset Management, which reported holding $1386.6 million worth of stock at the end of September. It was followed by Polar Capital with a $27.6 million position. Other investors bullish on the company included GLG Partners, Citadel Investment Group, and Beddow Capital Management. In terms of the portfolio weights assigned to each position Horizon Asset Management allocated the biggest weight to Texas Pacific Land Trust (NYSE:TPL), around 39.34% of its 13F portfolio. White Elm Capital is also relatively very bullish on the stock, dishing out 6.1 percent of its 13F equity portfolio to TPL.
Consequently, specific money managers have jumped into Texas Pacific Land Trust (NYSE:TPL) headfirst. Yaupon Capital, managed by Steve Pattyn, initiated the biggest position in Texas Pacific Land Trust (NYSE:TPL). Yaupon Capital had $3.5 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $0.5 million investment in the stock during the quarter. The following funds were also among the new TPL investors: John A. Levin’s Levin Capital Strategies, Brandon Haley’s Holocene Advisors, and Dmitry Balyasny’s Balyasny Asset Management.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Texas Pacific Land Trust (NYSE:TPL) but similarly valued. We will take a look at Braskem SA (NYSE:BAK), Cousins Properties Incorporated (NYSE:CUZ), Performance Food Group Company (NYSE:PFGC), and Unum Group (NYSE:UNM). This group of stocks’ market values resemble TPL’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BAK | 5 | 54783 | 5 |
| CUZ | 12 | 150948 | -7 |
| PFGC | 31 | 481738 | 5 |
| UNM | 30 | 453012 | 5 |
| Average | 19.5 | 285120 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $285 million. That figure was $1469 million in TPL’s case. Performance Food Group Company (NYSE:PFGC) is the most popular stock in this table. On the other hand Braskem SA (NYSE:BAK) is the least popular one with only 5 bullish hedge fund positions. Texas Pacific Land Trust (NYSE:TPL) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately TPL wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); TPL investors were disappointed as the stock returned -51.6% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
