Here is What Hedge Funds Think About Tronox Ltd (TROX)

Before we spend days researching a stock idea we’d like to take a look at how hedge funds and billionaire investors recently traded that stock. S&P 500 Index returned about 5.2% during the last 12 months ending October 30, 2015. Less than 49% of the stocks in the index outperformed the index. This means you (or a monkey throwing a dart) have less than an even chance of beating the market by randomly picking a stock. On the other hand, the top 30 S&P 500 stocks among hedge funds at the end of September 2014 had an average return of 9.5% during the same period. Sixty three percent of these 30 stocks outperformed the market. Hedge funds had bad stock picks like everyone else. Micron, which lost 50% over this period, was one of hedge funds’ 30 favorite S&P 500 stocks. Anadarko Petroleum was another failed stock pick which lost more than 26%. So, taking cues from hedge funds isn’t a foolproof strategy, but it seems to work on average. In this article, we will take a look at what hedge funds think about Tronox Ltd (NYSE:TROX).

Is Tronox Ltd (NYSE:TROX) ready to rally soon? Prominent investors are in a pessimistic mood. The number of bullish hedge fund bets decreased by 5 recently. TROX was in 12 hedge funds’ portfolios at the end of the third quarter of 2015. There were 17 hedge funds in our database with TROX holdings at the end of the previous quarter. At the end of this article we will also compare TROX to other stocks, including HomeStreet Inc (NASDAQ:HMST), First Trust High Income Long/short Fund (NYSE:FSD), and SunCoke Energy, Inc (NYSE:SXC) to get a better sense of its popularity.

At the moment there are plenty of tools investors employ to grade stocks. Some of the most under-the-radar tools are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the top picks of the top money managers can outpace the broader indices by a very impressive amount (see the details here).

Now, let’s check out the latest action surrounding Tronox Ltd (NYSE:TROX).

Hedge fund activity in Tronox Ltd (NYSE:TROX)

Heading into Q4, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a decrease of 29% from the previous quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Debra Fine’s Fine Capital Partners has the largest position in Tronox Ltd (NYSE:TROX), worth close to $28.4 million, comprising 2.8% of its total 13F portfolio. Sitting at the No. 2 spot is Private Capital Management, managed by Gregg J. Powers, which holds a $9.6 million stake; the fund has 1.1% of its 13F portfolio invested in the stock. Some other peers with similar optimism consist of Marc Lasry’s Avenue Capital, D. E. Shaw’s D E Shaw and Michael Kaine’s Numina Capital.

Because Tronox Ltd (NYSE:TROX) has experienced bearish sentiment from the smart money, logic holds that there lies a certain “tier” of hedgies that decided to sell off their positions entirely last quarter. It’s worth mentioning that Jamie Zimmerman’s Litespeed Management dumped the largest position of the 700 funds followed by Insider Monkey, worth about $44.6 million in stock. Michael Kaine’s fund, Numina Capital, also cut its holding, dropping about $8.3 million worth of shares. These moves are interesting, as total hedge fund interest was cut by 5 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to Tronox Ltd (NYSE:TROX). These stocks are HomeStreet Inc (NASDAQ:HMST), First Trust High Income Long/short Fund (NYSE:FSD), SunCoke Energy, Inc (NYSE:SXC), and Helix Energy Solutions Group Inc. (NYSE:HLX). This group of stocks’ market values are similar to TROX’s market value.

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 $69 million. That figure was $50 million in TROX’s case. SunCoke Energy, Inc (NYSE:SXC) is the most popular stock in this table, whereas First Trust High Income Long/short Fund (NYSE:FSD) is the least popular one with only 6 bullish hedge fund positions. Tronox Ltd (NYSE:TROX) 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. In this regard SXC might be a better candidate to consider a long position.