Is Texas Pacific Land Trust (TPL) A Good Stock To Buy?

Before we spend days researching a stock idea we like to take a look at how hedge funds and billionaire investors recently traded that stock. Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018. This means hedge funds that are allocating a higher percentage of their portfolio to small-cap stocks were probably underperforming the market. However, this also means that as small-cap stocks start to mean revert, these hedge funds will start delivering better returns than the S&P 500 Index funds. In this article, we will take a look at what hedge funds think about Texas Pacific Land Trust (NYSE:TPL).

Is Texas Pacific Land Trust (NYSE:TPL) going to take off soon? Money managers are selling. The number of long hedge fund bets were cut by 4 in recent months. Our calculations also showed that TPL isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). TPL was in 12 hedge funds’ portfolios at the end of September. There were 16 hedge funds in our database with TPL positions at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Noam Gottesman GLG Partners

Noam Gottesman of GLG Partners

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy  based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We’re going to take a glance at the latest hedge fund action regarding Texas Pacific Land Trust (NYSE:TPL).

How have hedgies been trading Texas Pacific Land Trust (NYSE:TPL)?

Heading into the fourth quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in TPL over the last 17 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Horizon Asset Management held the most valuable stake in Texas Pacific Land Trust (NYSE:TPL), which was worth $1158.1 million at the end of the third quarter. On the second spot was Polar Capital which amassed $38.9 million worth of shares. White Elm Capital, GLG Partners, and Arrowstreet Capital 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 Horizon Asset Management allocated the biggest weight to Texas Pacific Land Trust (NYSE:TPL), around 34.87% of its 13F portfolio. White Elm Capital is also relatively very bullish on the stock, dishing out 4.55 percent of its 13F equity portfolio to TPL.

Since Texas Pacific Land Trust (NYSE:TPL) has faced declining sentiment from the aggregate hedge fund industry, we can see that there was a specific group of hedge funds who sold off their positions entirely by the end of the third quarter. It’s worth mentioning that Jody LaNasa’s Serengeti Asset Management dumped the largest investment of the “upper crust” of funds monitored by Insider Monkey, valued at about $2.4 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace was right behind this move, as the fund dumped about $1.9 million worth. These transactions are interesting, as total hedge fund interest fell by 4 funds by the end of the third quarter.

Let’s now review hedge fund activity in other stocks similar to Texas Pacific Land Trust (NYSE:TPL). We will take a look at Manpowergroup Inc (NYSE:MAN), Portland General Electric Company (NYSE:POR), Science Applications International Corporation (NYSE:SAIC), and MKS Instruments, Inc. (NASDAQ:MKSI). This group of stocks’ market valuations are closest to TPL’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MAN 19 377209 2
POR 23 391261 5
SAIC 24 350974 -2
MKSI 17 411513 -2
Average 20.75 382739 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $383 million. That figure was $1254 million in TPL’s case. Science Applications International Corporation (NYSE:SAIC) is the most popular stock in this table. On the other hand MKS Instruments, Inc. (NASDAQ:MKSI) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Texas Pacific Land Trust (NYSE:TPL) is even less popular than MKSI. Hedge funds dodged a bullet by taking a bearish stance towards TPL. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately TPL wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); TPL investors were disappointed as the stock returned 3.9% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.

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