Talos Energy, Inc. (TALO): Were Hedge Funds Right About This Stock?

“I have been following Dr. Inan Dogan since this outbreak, and he is  a phenomenally intelligent researcher. One month ago, Dr. Dogan’s prediction that the total U.S. death toll would be 20,000+ by April 15th was deemed “radical”. His Recession is Imminent article in February was very timely. Now he believes we could quickly end lockdowns in NYC after some simple testing. A must read” were the words used by our readers to describe our latest article.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of December. At Insider Monkey, we follow nearly 835 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Talos Energy, Inc. (NYSE:TALO), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

Talos Energy, Inc. (NYSE:TALO) was in 14 hedge funds’ portfolios at the end of December. TALO has seen a decrease in hedge fund sentiment lately. There were 16 hedge funds in our database with TALO holdings at the end of the previous quarter. Our calculations also showed that TALO isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

Chuck Royce

Chuck Royce of Royce & Associates

We leave no stone unturned when looking for the next great investment idea. For example, this trader is claiming triple digit returns, so we check out his latest trade recommendations. We are probably at the peak of the COVID-19 pandemic, so we check out this biotech investor’s coronavirus picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a look at the latest hedge fund action regarding Talos Energy, Inc. (NYSE:TALO).

How have hedgies been trading Talos Energy, Inc. (NYSE:TALO)?

At Q4’s end, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards TALO over the last 18 quarters. 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, Encompass Capital Advisors held the most valuable stake in Talos Energy, Inc. (NYSE:TALO), which was worth $28.8 million at the end of the third quarter. On the second spot was Royce & Associates which amassed $10 million worth of shares. Portolan Capital Management, Citadel Investment Group, and Millennium Management 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 Encompass Capital Advisors allocated the biggest weight to Talos Energy, Inc. (NYSE:TALO), around 1.83% of its 13F portfolio. Portolan Capital Management is also relatively very bullish on the stock, earmarking 0.54 percent of its 13F equity portfolio to TALO.

Since Talos Energy, Inc. (NYSE:TALO) has experienced bearish sentiment from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of funds that decided to sell off their positions entirely last quarter. Interestingly, Renaissance Technologies dumped the largest position of all the hedgies monitored by Insider Monkey, valued at an estimated $2.2 million in stock, and Kenneth Tropin’s Graham Capital Management was right behind this move, as the fund sold off about $2.1 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 2 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Talos Energy, Inc. (NYSE:TALO) but similarly valued. We will take a look at Sunrun Inc (NASDAQ:RUN), Eagle Bancorp, Inc. (NASDAQ:EGBN), Gibraltar Industries Inc (NASDAQ:ROCK), and Esperion Therapeutics, Inc. (NASDAQ:ESPR). This group of stocks’ market valuations are similar to TALO’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RUN 23 470192 5
EGBN 18 36520 1
ROCK 23 147934 4
ESPR 15 210894 -1
Average 19.75 216385 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $216 million. That figure was $62 million in TALO’s case. Sunrun Inc (NASDAQ:RUN) is the most popular stock in this table. On the other hand Esperion Therapeutics, Inc. (NASDAQ:ESPR) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Talos Energy, Inc. (NYSE:TALO) is even less popular than ESPR. Hedge funds dodged a bullet by taking a bearish stance towards TALO. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but managed to beat the market by 4.2 percentage points. Unfortunately TALO wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); TALO investors were disappointed as the stock returned -80.1% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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