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Hedge Funds Keep Buying TransAlta Corporation (TAC)

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 at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. In this article we look at what those investors think of TransAlta Corporation (NYSE:TAC).

TransAlta Corporation (NYSE:TAC) was in 15 hedge funds’ portfolios at the end of the first quarter of 2020. TAC has experienced an increase in support from the world’s most elite money managers lately. There were 10 hedge funds in our database with TAC holdings at the end of the previous quarter. Our calculations also showed that TAC 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. 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. Keeping this in mind let’s take a glance at the new hedge fund action surrounding TransAlta Corporation (NYSE:TAC).

How are hedge funds trading TransAlta Corporation (NYSE:TAC)?

At the end of the first quarter, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 50% from the previous quarter. By comparison, 11 hedge funds held shares or bullish call options in TAC a year ago. With hedgies’ capital changing hands, there exists a few key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

Is TAC A Good Stock To Buy?

More specifically, Renaissance Technologies was the largest shareholder of TransAlta Corporation (NYSE:TAC), with a stake worth $18.3 million reported as of the end of September. Trailing Renaissance Technologies was Arrowstreet Capital, which amassed a stake valued at $12.7 million. Marshall Wace LLP, Point72 Asset Management, and Citadel Investment Group 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 Waratah Capital Advisors allocated the biggest weight to TransAlta Corporation (NYSE:TAC), around 0.23% of its 13F portfolio. Fairfax Financial Holdings is also relatively very bullish on the stock, dishing out 0.08 percent of its 13F equity portfolio to TAC.

As aggregate interest increased, key money managers have jumped into TransAlta Corporation (NYSE:TAC) headfirst. Point72 Asset Management, managed by Steve Cohen, created the most outsized position in TransAlta Corporation (NYSE:TAC). Point72 Asset Management had $4.5 million invested in the company at the end of the quarter. Noam Gottesman’s GLG Partners also initiated a $1.7 million position during the quarter. The following funds were also among the new TAC investors: Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, Paul Tudor Jones’s Tudor Investment Corp, and Peter Muller’s PDT Partners.

Let’s also examine hedge fund activity in other stocks similar to TransAlta Corporation (NYSE:TAC). These stocks are Akcea Therapeutics, Inc. (NASDAQ:AKCA), Tootsie Roll Industries, Inc. (NYSE:TR), Western Gas Partners, LP (NYSE:WES), and Amarin Corporation plc (NASDAQ:AMRN). This group of stocks’ market caps match TAC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AKCA 11 11776 1
TR 14 68255 -3
WES 12 27993 -1
AMRN 39 328086 3
Average 19 109028 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $109 million. That figure was $55 million in TAC’s case. Amarin Corporation plc (NASDAQ:AMRN) is the most popular stock in this table. On the other hand Akcea Therapeutics, Inc. (NASDAQ:AKCA) is the least popular one with only 11 bullish hedge fund positions. TransAlta Corporation (NYSE:TAC) 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 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 13.3% in 2020 through June 25th and surpassed the market by 16.8 percentage points. Unfortunately TAC wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); TAC investors were disappointed as the stock returned 9.6% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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