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Should You Buy TransCanada Corporation (TRP)?

“Value has performed relatively poorly since the 2017 shift, but we believe challenges to the S&P 500’s dominance are mounting and resulting active opportunities away from the index are growing. At some point, this fault line will break, likely on the back of rising rates, and all investors will be reminded that the best time to diversify away from the winners is when it is most painful. The bargain of capturing long-term value may be short-term pain, but enough is eventually enough and it comes time to harvest the benefits.,” said Clearbridge Investments in its market commentary. We aren’t sure whether long-term interest rates will top 5% and value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. That’s why we believe it would be worthwhile to take a look at the hedge fund sentiment on TransCanada Corporation (NYSE:TRP) in order to identify whether reputable and successful top money managers continue to believe in its potential.

TransCanada Corporation (NYSE:TRP) investors should pay attention to an increase in activity from the world’s largest hedge funds recently. Our calculations also showed that TRP isn’t among the 30 most popular stocks among hedge funds.

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’ 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 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

CITADEL INVESTMENT GROUP

We’re going to check out the fresh hedge fund action encompassing TransCanada Corporation (NYSE:TRP).

How are hedge funds trading TransCanada Corporation (NYSE:TRP)?

At Q3’s end, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from one quarter earlier. By comparison, 15 hedge funds held shares or bullish call options in TRP heading into this year. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with TRP Positions

The largest stake in TransCanada Corporation (NYSE:TRP) was held by Magnetar Capital, which reported holding $111 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $39.5 million position. Other investors bullish on the company included Renaissance Technologies, Bridgewater Associates, and Marshall Wace LLP.

Now, key hedge funds have been driving this bullishness. Springbok Capital, managed by Gavin Saitowitz and Cisco J. del Valle, established the most valuable position in TransCanada Corporation (NYSE:TRP). Springbok Capital had $2.2 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also initiated a $1.1 million position during the quarter. The only other fund with a new position in the stock is Frederick DiSanto’s Ancora Advisors.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as TransCanada Corporation (NYSE:TRP) but similarly valued. These stocks are Air Products & Chemicals, Inc. (NYSE:APD), Edwards Lifesciences Corporation (NYSE:EW), BCE Inc. (NYSE:BCE), and AFLAC Incorporated (NYSE:AFL). This group of stocks’ market valuations resemble TRP’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
APD 42 1328827 6
EW 29 706289 1
BCE 17 344957 1
AFL 29 922620 6
Average 29.25 825673 3.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.25 hedge funds with bullish positions and the average amount invested in these stocks was $826 million. That figure was $229 million in TRP’s case. Air Products & Chemicals, Inc. (NYSE:APD) is the most popular stock in this table. On the other hand BCE Inc. (NYSE:BCE) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks TransCanada Corporation (NYSE:TRP) is even less popular than BCE. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

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

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