Hedge Funds Never Been Less Bullish On Transocean Ltd (RIG)

In this article we will check out the progression of hedge fund sentiment towards Transocean Ltd (NYSE:RIG) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is Transocean Ltd (NYSE:RIG) a bargain? The smart money is taking a bearish view. The number of bullish hedge fund bets fell by 5 recently. Our calculations also showed that RIG 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.

Today there are dozens of methods market participants have at their disposal to size up stocks. A duo of the most useful methods are hedge fund and insider trading signals. Our researchers have shown that, historically, those who follow the top picks of the top money managers can trounce the broader indices by a solid amount (see the details here).

Marc Lasry of Avenue Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to check out the latest hedge fund action regarding Transocean Ltd (NYSE:RIG).

What have hedge funds been doing with Transocean Ltd (NYSE:RIG)?

At the end of the first quarter, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -19% from one quarter earlier. On the other hand, there were a total of 37 hedge funds with a bullish position in RIG a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Contrarius Investment Management, managed by Stephen Mildenhall, holds the largest position in Transocean Ltd (NYSE:RIG). Contrarius Investment Management has a $49.6 million position in the stock, comprising 6.4% of its 13F portfolio. On Contrarius Investment Management’s heels is Platinum Asset Management, managed by Kerr Neilson, which holds a $18.1 million position; the fund has 0.5% of its 13F portfolio invested in the stock. Other members of the smart money with similar optimism encompass Jonathan Barrett and Paul Segal’s Luminus Management, Marc Lasry’s Avenue Capital and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Avenue Capital allocated the biggest weight to Transocean Ltd (NYSE:RIG), around 7.23% of its 13F portfolio. Contrarius Investment Management is also relatively very bullish on the stock, setting aside 6.35 percent of its 13F equity portfolio to RIG.

Seeing as Transocean Ltd (NYSE:RIG) has witnessed bearish sentiment from hedge fund managers, it’s safe to say that there is a sect of fund managers that slashed their entire stakes by the end of the first quarter. Interestingly, Paul Marshall and Ian Wace’s Marshall Wace LLP cut the largest stake of the 750 funds watched by Insider Monkey, comprising an estimated $11.4 million in stock. Howard Marks’s fund, Oaktree Capital Management, also sold off its stock, about $10.1 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 5 funds by the end of the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Transocean Ltd (NYSE:RIG). These stocks are Granite Construction Incorporated (NYSE:GVA), Arcos Dorados Holding Inc (NYSE:ARCO), Tronox Holdings Plc (NYSE:TROX), and AudioCodes Ltd. (NASDAQ:AUDC). All of these stocks’ market caps are similar to RIG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GVA 16 45982 9
ARCO 12 36064 -1
TROX 17 52262 -6
AUDC 10 37318 1
Average 13.75 42907 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $43 million. That figure was $117 million in RIG’s case. Tronox Holdings Plc (NYSE:TROX) is the most popular stock in this table. On the other hand AudioCodes Ltd. (NASDAQ:AUDC) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Transocean Ltd (NYSE:RIG) is more popular among hedge funds. 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 returned 12.2% in 2020 through June 17th but still managed to beat the market by 14.8 percentage points. Hedge funds were also right about betting on RIG as the stock returned 89.7% so far in Q2 (through June 17th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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