Is Transcat, Inc. (TRNS) Going to Burn These Hedge Funds?

In this article we will take a look at whether hedge funds think Transcat, Inc. (NASDAQ:TRNS) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is Transcat, Inc. (NASDAQ:TRNS) a healthy stock for your portfolio? The best stock pickers are becoming less confident. The number of bullish hedge fund positions retreated by 1 in recent months. Our calculations also showed that TRNS isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 58 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to go over the fresh hedge fund action surrounding Transcat, Inc. (NASDAQ:TRNS).

What have hedge funds been doing with Transcat, Inc. (NASDAQ:TRNS)?

At Q1’s end, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from the fourth quarter of 2019. By comparison, 9 hedge funds held shares or bullish call options in TRNS a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Juniper Investment Company held the most valuable stake in Transcat, Inc. (NASDAQ:TRNS), which was worth $11.3 million at the end of the third quarter. On the second spot was Minerva Advisors which amassed $8.8 million worth of shares. ACK Asset Management, Royce & Associates, and Ancora Advisors 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 Juniper Investment Company allocated the biggest weight to Transcat, Inc. (NASDAQ:TRNS), around 17.42% of its 13F portfolio. Minerva Advisors is also relatively very bullish on the stock, setting aside 6.95 percent of its 13F equity portfolio to TRNS.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Manatuck Hill Partners. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified TRNS as a viable investment and initiated a position in the stock.

Let’s also examine hedge fund activity in other stocks similar to Transcat, Inc. (NASDAQ:TRNS). These stocks are NACCO Industries, Inc. (NYSE:NC), Hurco Companies, Inc. (NASDAQ:HURC), Genesco Inc. (NYSE:GCO), and Overseas Shipholding Group, Inc. (NYSE:OSG). This group of stocks’ market valuations match TRNS’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $23 million. That figure was $37 million in TRNS’s case. Genesco Inc. (NYSE:GCO) is the most popular stock in this table. On the other hand NACCO Industries, Inc. (NYSE:NC) is the least popular one with only 5 bullish hedge fund positions. Transcat, Inc. (NASDAQ:TRNS) 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.9% in 2020 through June 10th and surpassed the market by 14.2 percentage points. Unfortunately TRNS wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); TRNS investors were disappointed as the stock returned -2% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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