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Should I Buy Targa Resources Corp (TRGP)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Targa Resources Corp (NYSE:TRGP) and determine whether hedge funds skillfully traded this stock.

Targa Resources Corp (NYSE:TRGP) was in 31 hedge funds’ portfolios at the end of June. The all time high for this statistics is 35. TRGP has experienced an increase in hedge fund interest recently. There were 29 hedge funds in our database with TRGP holdings at the end of March. Our calculations also showed that TRGP isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Steven Cohen

Steven Cohen of Point72 Asset Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. With all of this in mind let’s take a look at the latest hedge fund action regarding Targa Resources Corp (NYSE:TRGP).

How have hedgies been trading Targa Resources Corp (NYSE:TRGP)?

At Q2’s end, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from the first quarter of 2020. On the other hand, there were a total of 18 hedge funds with a bullish position in TRGP a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Arrowstreet Capital held the most valuable stake in Targa Resources Corp (NYSE:TRGP), which was worth $48.6 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $35 million worth of shares. Point72 Asset Management, Citadel Investment Group, and Deep Basin 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 Deep Basin Capital allocated the biggest weight to Targa Resources Corp (NYSE:TRGP), around 3.96% of its 13F portfolio. Yaupon Capital is also relatively very bullish on the stock, setting aside 2.37 percent of its 13F equity portfolio to TRGP.

Now, key money managers were leading the bulls’ herd. Zimmer Partners, managed by Stuart J. Zimmer, established the most valuable position in Targa Resources Corp (NYSE:TRGP). Zimmer Partners had $13.9 million invested in the company at the end of the quarter. Anand Parekh’s Alyeska Investment Group also made a $9.1 million investment in the stock during the quarter. The other funds with brand new TRGP positions are Vince Maddi and Shawn Brennan’s SIR Capital Management, Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, and Greg Poole’s Echo Street Capital Management.

Let’s check out hedge fund activity in other stocks similar to Targa Resources Corp (NYSE:TRGP). We will take a look at BlackLine, Inc. (NASDAQ:BL), Ultragenyx Pharmaceutical Inc (NASDAQ:RARE), Cullen/Frost Bankers, Inc. (NYSE:CFR), Leggett & Platt, Inc. (NYSE:LEG), Globus Medical Inc (NYSE:GMED), Eastgroup Properties Inc (NYSE:EGP), and Texas Pacific Land Trust (NYSE:TPL). All of these stocks’ market caps are similar to TRGP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BL 18 227498 0
RARE 24 352560 6
CFR 13 21532 -5
LEG 29 184075 4
GMED 32 132005 13
EGP 14 46516 1
TPL 14 1048637 0
Average 20.6 287546 2.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.6 hedge funds with bullish positions and the average amount invested in these stocks was $288 million. That figure was $290 million in TRGP’s case. Globus Medical Inc (NYSE:GMED) is the most popular stock in this table. On the other hand Cullen/Frost Bankers, Inc. (NYSE:CFR) is the least popular one with only 13 bullish hedge fund positions. Targa Resources Corp (NYSE:TRGP) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TRGP is 80.9. 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. This is a slightly positive signal but 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 23.8% in 2020 through September 14th and beat the market by 17.6 percentage points. Unfortunately TRGP wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on TRGP were disappointed as the stock returned -23.7% during the same time period 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 many of these stocks already outperformed the market so far this year.

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