Is Teekay Offshore Partners L.P. (TOO) A Good Stock To Buy?

Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 20% in 2019 (through September 30th). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of 24% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Teekay Offshore Partners L.P. (NYSE:TOO).

Teekay Offshore Partners L.P. (NYSE:TOO) was in 6 hedge funds’ portfolios at the end of June. TOO investors should pay attention to a decrease in support from the world’s most elite money managers recently. There were 8 hedge funds in our database with TOO holdings at the end of the previous quarter. Our calculations also showed that TOO isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

To the average investor there are several formulas stock traders have at their disposal to size up stocks. A pair of the most underrated formulas are hedge fund and insider trading signals. We have shown that, historically, those who follow the best picks of the elite fund managers can trounce their index-focused peers by a healthy amount (see the details here).

Chuck Royce

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s check out the latest hedge fund action encompassing Teekay Offshore Partners L.P. (NYSE:TOO).

How are hedge funds trading Teekay Offshore Partners L.P. (NYSE:TOO)?

At Q2’s end, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of -25% from the first quarter of 2019. By comparison, 8 hedge funds held shares or bullish call options in TOO a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with TOO Positions

The largest stake in Teekay Offshore Partners L.P. (NYSE:TOO) was held by Aquamarine Capital Management, which reported holding $1.3 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $0.6 million position. Other investors bullish on the company included Royce & Associates, Millennium Management, and Citadel Investment Group.

Since Teekay Offshore Partners L.P. (NYSE:TOO) has witnessed declining sentiment from hedge fund managers, logic holds that there lies a certain “tier” of funds that elected to cut their positions entirely in the second quarter. Intriguingly, Jonathan Barrett and Paul Segal’s Luminus Management cut the biggest stake of the “upper crust” of funds followed by Insider Monkey, worth close to $8.4 million in stock. Bradley Louis Radoff’s fund, Fondren Management, also cut its stock, about $0.5 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 2 funds in the second quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Teekay Offshore Partners L.P. (NYSE:TOO) but similarly valued. These stocks are Cowen Inc. (NASDAQ:COWN), Primo Water Corporation (NASDAQ:PRMW), Barings BDC, Inc. (NYSE:BBDC), and PolyMet Mining Corp. (NYSE:PLM). All of these stocks’ market caps are closest to TOO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
COWN 19 76670 -2
PRMW 12 108629 -1
BBDC 13 31645 1
PLM 3 211 1
Average 11.75 54289 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $54 million. That figure was $3 million in TOO’s case. Cowen Inc. (NASDAQ:COWN) is the most popular stock in this table. On the other hand PolyMet Mining Corp. (NYSE:PLM) is the least popular one with only 3 bullish hedge fund positions. Teekay Offshore Partners L.P. (NYSE:TOO) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately TOO wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); TOO investors were disappointed as the stock returned -7.9% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.

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