Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 817 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Tuscan Holdings Corp. II (NASDAQ:THCA).
Is THCA a good stock to buy now? Hedge fund interest in Tuscan Holdings Corp. II (NASDAQ:THCA) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that THCA 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). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Regis Corporation (NYSE:RGS), QEP Resources Inc (NYSE:QEP), and Ryerson Holding Corporation (NYSE:RYI) to gather more data points.
Video: 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’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
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 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. 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. With all of this in mind let’s take a glance at the key hedge fund action surrounding Tuscan Holdings Corp. II (NASDAQ:THCA).
What does smart money think about Tuscan Holdings Corp. II (NASDAQ:THCA)?
At the end of the third quarter, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the second quarter of 2020. On the other hand, there were a total of 9 hedge funds with a bullish position in THCA a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Fir Tree held the most valuable stake in Tuscan Holdings Corp. II (NASDAQ:THCA), which was worth $13 million at the end of the third quarter. On the second spot was Hudson Bay Capital Management which amassed $6.3 million worth of shares. Paloma Partners, Millennium Management, and D E Shaw 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 Fir Tree allocated the biggest weight to Tuscan Holdings Corp. II (NASDAQ:THCA), around 0.66% of its 13F portfolio. Paloma Partners is also relatively very bullish on the stock, setting aside 0.13 percent of its 13F equity portfolio to THCA.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the third quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.
Let’s now take a look at hedge fund activity in other stocks similar to Tuscan Holdings Corp. II (NASDAQ:THCA). We will take a look at Regis Corporation (NYSE:RGS), QEP Resources Inc (NYSE:QEP), Ryerson Holding Corporation (NYSE:RYI), Fulcrum Therapeutics, Inc. (NASDAQ:FULC), Houghton Mifflin Harcourt Co (NASDAQ:HMHC), P.A.M. Transportation Services, Inc. (NASDAQ:PTSI), and Transcat, Inc. (NASDAQ:TRNS). This group of stocks’ market caps are closest to THCA’s market cap.
|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 10.6 hedge funds with bullish positions and the average amount invested in these stocks was $40 million. That figure was $33 million in THCA’s case. Houghton Mifflin Harcourt Co (NASDAQ:HMHC) is the most popular stock in this table. On the other hand P.A.M. Transportation Services, Inc. (NASDAQ:PTSI) is the least popular one with only 1 bullish hedge fund positions. Tuscan Holdings Corp. II (NASDAQ:THCA) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for THCA is 53.5. 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. 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 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 surpassed the market again by 16 percentage points. Unfortunately THCA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); THCA investors were disappointed as the stock returned 4.4% since the end of September (through 12/2) 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 most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.