Should I Avoid Tellurian Inc. (TELL)?

In this article we are going to use hedge fund sentiment as a tool and determine whether Tellurian Inc. (NASDAQ:TELL) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is Tellurian Inc. (NASDAQ:TELL) ready to rally soon? Money managers were getting less bullish. The number of long hedge fund positions went down by 1 lately. Tellurian Inc. (NASDAQ:TELL) was in 3 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 16. Our calculations also showed that TELL 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). There were 4 hedge funds in our database with TELL holdings at the end of June.

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 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 analyze the new hedge fund action surrounding Tellurian Inc. (NASDAQ:TELL).

How have hedgies been trading Tellurian Inc. (NASDAQ:TELL)?

Heading into the fourth quarter of 2020, a total of 3 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from the second quarter of 2020. On the other hand, there were a total of 15 hedge funds with a bullish position in TELL a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

Among these funds, Citadel Investment Group held the most valuable stake in Tellurian Inc. (NASDAQ:TELL), which was worth $1.9 million at the end of the third quarter. On the second spot was Yaupon Capital which amassed $0.4 million worth of shares. Covalis Capital was 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 Yaupon Capital allocated the biggest weight to Tellurian Inc. (NASDAQ:TELL), around 0.46% of its 13F portfolio. Covalis Capital is also relatively very bullish on the stock, setting aside 0.13 percent of its 13F equity portfolio to TELL.

Due to the fact that Tellurian Inc. (NASDAQ:TELL) has witnessed falling interest from hedge fund managers, we can see that there exists a select few hedgies who sold off their entire stakes last quarter. It’s worth mentioning that Greg Eisner’s Engineers Gate Manager dropped the biggest investment of all the hedgies followed by Insider Monkey, totaling close to $0.1 million in stock, and Joel Greenblatt’s Gotham Asset Management was right behind this move, as the fund sold off about $0 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 1 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Tellurian Inc. (NASDAQ:TELL) but similarly valued. We will take a look at International Tower Hill Mines Ltd (NYSE:THM), Applied Optoelectronics Inc (NASDAQ:AAOI), Graybug Vision, Inc. (NASDAQ:GRAY), Sierra Bancorp (NASDAQ:BSRR), W&T Offshore, Inc. (NYSE:WTI), MOGU Inc. (NYSE:MOGU), and Limoneira Company (NASDAQ:LMNR). All of these stocks’ market caps resemble TELL’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $53 million. That figure was $3 million in TELL’s case. Graybug Vision, Inc. (NASDAQ:GRAY) is the most popular stock in this table. On the other hand Limoneira Company (NASDAQ:LMNR) is the least popular one with only 2 bullish hedge fund positions. Tellurian Inc. (NASDAQ:TELL) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for TELL is 15.9. 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. 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 28.1% in 2020 through November 23rd and still beat the market by 15.4 percentage points. A small number of hedge funds were also right about betting on TELL as the stock returned 47.5% since the end of the third quarter (through 11/23) and outperformed the market by an even larger margin.

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