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. Insider Monkey finished processing 817 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of September 30th, 2020. What do these smart investors think about Talos Energy, Inc. (NYSE:TALO)?
Is Talos Energy, Inc. (NYSE:TALO) a good stock to buy now? Investors who are in the know were in a pessimistic mood. The number of bullish hedge fund bets retreated by 6 recently. Talos Energy, Inc. (NYSE:TALO) was in 8 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 17. Our calculations also showed that TALO isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 14 hedge funds in our database with TALO holdings at the end of June.
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind let’s go over the recent hedge fund action encompassing Talos Energy, Inc. (NYSE:TALO).
What have hedge funds been doing with Talos Energy, Inc. (NYSE:TALO)?
Heading into the fourth quarter of 2020, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -43% from one quarter earlier. By comparison, 16 hedge funds held shares or bullish call options in TALO a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
Among these funds, Graham Capital Management held the most valuable stake in Talos Energy, Inc. (NYSE:TALO), which was worth $10.3 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $4 million worth of shares. D E Shaw, Millennium Management, and Winton 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 Graham Capital Management allocated the biggest weight to Talos Energy, Inc. (NYSE:TALO), around 0.36% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, designating 0.02 percent of its 13F equity portfolio to TALO.
Since Talos Energy, Inc. (NYSE:TALO) has experienced a decline in interest from the entirety of the hedge funds we track, we can see that there were a few hedgies who sold off their positions entirely heading into Q4. It’s worth mentioning that Matt Smith’s Deep Basin Capital said goodbye to the largest stake of the 750 funds monitored by Insider Monkey, totaling close to $14.8 million in stock, and Todd J. Kantor’s Encompass Capital Advisors was right behind this move, as the fund cut about $4.5 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 6 funds heading into Q4.
Let’s check out hedge fund activity in other stocks similar to Talos Energy, Inc. (NYSE:TALO). We will take a look at Ardelyx Inc (NASDAQ:ARDX), Navigator Holdings Ltd (NYSE:NVGS), Clear Channel Outdoor Holdings, Inc. (NYSE:CCO), AxoGen, Inc. (NASDAQ:AXGN), Applied Therapeutics, Inc. (NASDAQ:APLT), Brookdale Senior Living, Inc. (NYSE:BKD), and Pacific Ethanol Inc (NASDAQ:PEIX). This group of stocks’ market valuations are similar to TALO’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.3 hedge funds with bullish positions and the average amount invested in these stocks was $105 million. That figure was $18 million in TALO’s case. Clear Channel Outdoor Holdings, Inc. (NYSE:CCO) is the most popular stock in this table. On the other hand Applied Therapeutics, Inc. (NASDAQ:APLT) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Talos Energy, Inc. (NYSE:TALO) is even less popular than APLT. Our overall hedge fund sentiment score for TALO is 13.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Hedge funds clearly dropped the ball on TALO as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 percentage points. These stocks gained 31.6% in 2020 through December 2nd and still beat the market by 16 percentage points. A small number of hedge funds were also right about betting on TALO as the stock returned 36.4% since Q3 (through December 2nd) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.