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Targa Resources Corp (TRGP): Are Hedge Funds Right About This Stock?

Out of thousands of stocks that are currently traded on the market, it is difficult to determine those that can really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of over 700 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Targa Resources Corp (NYSE:TRGP).

Is Targa Resources Corp (NYSE:TRGP) undervalued? Investors who are in the know are taking a bearish view. The number of bullish hedge fund positions shrunk by 1 lately. Our calculations also showed that TRGP isn’t among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? 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

Let’s go over the key hedge fund action encompassing Targa Resources Corp (NYSE:TRGP).

How are hedge funds trading Targa Resources Corp (NYSE:TRGP)?

At Q3’s end, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the previous quarter. On the other hand, there were a total of 20 hedge funds with a bullish position in TRGP at the beginning of this year. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

TRGP_dec2018

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Stuart J. Zimmer’s Zimmer Partners has the largest position in Targa Resources Corp (NYSE:TRGP), worth close to $372 million, corresponding to 4.9% of its total 13F portfolio. On Zimmer Partners’s heels is Point State Capital, managed by Zach Schreiber, which holds a $360.9 million position; the fund has 4.8% of its 13F portfolio invested in the stock. Other professional money managers that hold long positions comprise Ken Griffin’s Citadel Investment Group, Israel Englander’s Millennium Management and Israel Englander’s Millennium Management.

Due to the fact that Targa Resources Corp (NYSE:TRGP) has experienced falling interest from the entirety of the hedge funds we track, it’s safe to say that there were a few money managers who were dropping their entire stakes last quarter. Intriguingly, Alec Litowitz and Ross Laser’s Magnetar Capital dropped the biggest stake of the 700 funds tracked by Insider Monkey, valued at close to $23.9 million in stock. William Harnisch’s fund, Peconic Partners LLC, also sold off its stock, about $13.8 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 1 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to Targa Resources Corp (NYSE:TRGP). We will take a look at Chipotle Mexican Grill, Inc. (NYSE:CMG), Telecom Italia S.p.A. (NYSE:TI), DexCom, Inc. (NASDAQ:DXCM), and GrubHub Inc (NYSE:GRUB). This group of stocks’ market valuations resemble TRGP’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CMG 33 2025165 -6
TI 3 1661 -1
DXCM 30 999683 8
GRUB 38 1565269 3
Average 26 1147945 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $1.15 billion. That figure was $1.13 billion in TRGP’s case. GrubHub Inc (NYSE:GRUB) is the most popular stock in this table. On the other hand Telecom Italia S.p.A. (NYSE:TI) is the least popular one with only 3 bullish hedge fund positions. Targa Resources Corp (NYSE:TRGP) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard GRUB might be a better candidate to consider a long position.

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

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