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Is Turning Point Brands, Inc. (TPB) Going To Burn These Hedge Funds ?

We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds’ top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Turning Point Brands, Inc. (NYSE:TPB).

Turning Point Brands, Inc. (NYSE:TPB) was in 14 hedge funds’ portfolios at the end of the second quarter of 2019. TPB shareholders have witnessed a decrease in activity from the world’s largest hedge funds of late. There were 16 hedge funds in our database with TPB positions at the end of the previous quarter. Our calculations also showed that TPB 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.

Why do we pay any attention at all to hedge fund sentiment? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

COATUE MANAGEMENT

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. We’re going to view the new hedge fund action regarding Turning Point Brands, Inc. (NYSE:TPB).

What does smart money think about Turning Point Brands, Inc. (NYSE:TPB)?

At the end of the second quarter, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards TPB over the last 16 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

TPB_oct2019

More specifically, Renaissance Technologies was the largest shareholder of Turning Point Brands, Inc. (NYSE:TPB), with a stake worth $17.4 million reported as of the end of March. Trailing Renaissance Technologies was Portolan Capital Management, which amassed a stake valued at $13.5 million. Driehaus Capital, Sabrepoint Capital, and D E Shaw were also very fond of the stock, giving the stock large weights in their portfolios.

Since Turning Point Brands, Inc. (NYSE:TPB) has experienced declining sentiment from hedge fund managers, logic holds that there were a few hedgies who sold off their entire stakes heading into Q3. Interestingly, George Baxter’s Sabrepoint Capital dumped the biggest investment of all the hedgies followed by Insider Monkey, worth about $9.2 million in stock, and Don Morgan’s Brigade Capital was right behind this move, as the fund cut about $1.2 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 2 funds heading into Q3.

Let’s go over hedge fund activity in other stocks similar to Turning Point Brands, Inc. (NYSE:TPB). We will take a look at The Marcus Corporation (NYSE:MCS), Dicerna Pharmaceuticals Inc (NASDAQ:DRNA), Voyager Therapeutics, Inc. (NASDAQ:VYGR), and Addus Homecare Corporation (NASDAQ:ADUS). All of these stocks’ market caps match TPB’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MCS 14 63696 -2
DRNA 16 289627 -3
VYGR 18 194812 0
ADUS 17 103020 3
Average 16.25 162789 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $163 million. That figure was $63 million in TPB’s case. Voyager Therapeutics, Inc. (NASDAQ:VYGR) is the most popular stock in this table. On the other hand The Marcus Corporation (NYSE:MCS) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Turning Point Brands, Inc. (NYSE:TPB) is even less popular than MCS. Hedge funds dodged a bullet by taking a bearish stance towards TPB. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately TPB wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); TPB investors were disappointed as the stock returned -52.8% 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.

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