Should I Buy Transocean Ltd (RIG)?

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Transocean Ltd (NYSE:RIG) to find out whether there were any major changes in hedge funds’ views.

Transocean Ltd (NYSE:RIG) shareholders have witnessed an increase in hedge fund sentiment recently. Transocean Ltd (NYSE:RIG) was in 20 hedge funds’ portfolios at the end of March. The all time high for this statistic is 42. Our calculations also showed that RIG isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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Marc Lasry

Marc Lasry of Avenue Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind we’re going to take a look at the key hedge fund action surrounding Transocean Ltd (NYSE:RIG).

Do Hedge Funds Think RIG Is A Good Stock To Buy Now?

At Q1’s end, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from the previous quarter. On the other hand, there were a total of 21 hedge funds with a bullish position in RIG a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, D E Shaw held the most valuable stake in Transocean Ltd (NYSE:RIG), which was worth $39.2 million at the end of the fourth quarter. On the second spot was Two Sigma Advisors which amassed $35.6 million worth of shares. Renaissance Technologies, Avenue Capital, and Whitebox 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 Avenue Capital allocated the biggest weight to Transocean Ltd (NYSE:RIG), around 11.9% of its 13F portfolio. Discovery Capital Management is also relatively very bullish on the stock, dishing out 1.17 percent of its 13F equity portfolio to RIG.

Now, specific money managers have jumped into Transocean Ltd (NYSE:RIG) headfirst. Whitebox Advisors, managed by Andy Redleaf, initiated the biggest call position in Transocean Ltd (NYSE:RIG). Whitebox Advisors had $13.1 million invested in the company at the end of the quarter. Parvinder Thiara’s Athanor Capital also made a $5.7 million investment in the stock during the quarter. The other funds with brand new RIG positions are Mike Masters’s Masters Capital Management, Mike Masters’s Masters Capital Management, and Mark Broach’s Manatuck Hill Partners.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Transocean Ltd (NYSE:RIG) but similarly valued. We will take a look at Rambus Inc. (NASDAQ:RMBS), DiamondRock Hospitality Company (NYSE:DRH), Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. (NASDAQ:OMAB), Calix Inc (NYSE:CALX), Sinclair Broadcast Group, Inc. (NASDAQ:SBGI), WW International, Inc. (NASDAQ:WW), and ON24, Inc. (NYSE:ONTF). This group of stocks’ market caps are closest to RIG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RMBS 23 294753 0
DRH 11 118667 -2
OMAB 4 29537 -1
CALX 31 273135 6
SBGI 19 396417 -10
WW 28 466061 -4
ONTF 19 117781 19
Average 19.3 242336 1.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.3 hedge funds with bullish positions and the average amount invested in these stocks was $242 million. That figure was $149 million in RIG’s case. Calix Inc (NYSE:CALX) is the most popular stock in this table. On the other hand Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. (NASDAQ:OMAB) is the least popular one with only 4 bullish hedge fund positions. Transocean Ltd (NYSE:RIG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for RIG is 51.9. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and beat the market again by 7.7 percentage points. Unfortunately RIG wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on RIG were disappointed as the stock returned -1.4% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

Follow Transocean Ltd. (NYSE:RIG)

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