Trecora Resources (TREC) Fell Out Of Favor With Hedge Funds?

At Insider Monkey, we pore over the filings of nearly 866 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of March 31st. In this article, we will use that wealth of knowledge to determine whether or not Trecora Resources (NYSE:TREC) makes for a good investment right now.

Trecora Resources (NYSE:TREC) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 6 hedge funds’ portfolios at the end of the first quarter of 2021. Our calculations also showed that TREC isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). At the end of this article we will also compare TREC to other stocks including Second Sight Medical Products Inc (NASDAQ:EYES), Zynerba Pharmaceuticals Inc (NASDAQ:ZYNE), and Lazydays Holdings, Inc. (NASDAQ:LAZY) to get a better sense of its popularity.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Donald Yacktman of Yacktman Asset Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund owns nearly 40% of this $24 biotech stock and is trying to buy the rest for around $50. So, we recommended a long position to our monthly premium newsletter subscribers. 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. Now let’s take a look at the new hedge fund action encompassing Trecora Resources (NYSE:TREC).

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

At first quarter’s end, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards TREC over the last 23 quarters. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Is TREC A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Royce & Associates, managed by Chuck Royce, holds the number one position in Trecora Resources (NYSE:TREC). Royce & Associates has a $8.3 million position in the stock, comprising 0.1% of its 13F portfolio. The second largest stake is held by Donald Yacktman of Yacktman Asset Management, with a $7.4 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other members of the smart money with similar optimism include Peter Schliemann’s Rutabaga Capital Management, Renaissance Technologies and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position Rutabaga Capital Management allocated the biggest weight to Trecora Resources (NYSE:TREC), around 2.81% of its 13F portfolio. Yacktman Asset Management is also relatively very bullish on the stock, dishing out 0.08 percent of its 13F equity portfolio to TREC.

Since Trecora Resources (NYSE:TREC) has faced falling interest from the smart money, it’s easy to see that there is a sect of hedge funds who were dropping their positions entirely by the end of the first quarter. Interestingly, Don Morgan’s Brigade Capital cut the biggest position of the 750 funds monitored by Insider Monkey, valued at an estimated $0.7 million in stock, and David Harding’s Winton Capital Management was right behind this move, as the fund said goodbye to about $0.1 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Trecora Resources (NYSE:TREC) but similarly valued. These stocks are Second Sight Medical Products Inc (NASDAQ:EYES), Zynerba Pharmaceuticals Inc (NASDAQ:ZYNE), Lazydays Holdings, Inc. (NASDAQ:LAZY), Exicure, Inc. (NASDAQ:XCUR), L.B. Foster Company (NASDAQ:FSTR), Universal Technical Institute, Inc. (NYSE:UTI), and CIM Commercial Trust Corporation (NASDAQ:CMCT). This group of stocks’ market valuations are closest to TREC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EYES 3 15582 2
ZYNE 6 3479 0
LAZY 10 33874 0
XCUR 9 19857 1
FSTR 15 36919 3
UTI 9 41957 -3
CMCT 1 11739 -2
Average 7.6 23344 0.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 7.6 hedge funds with bullish positions and the average amount invested in these stocks was $23 million. That figure was $24 million in TREC’s case. L.B. Foster Company (NASDAQ:FSTR) is the most popular stock in this table. On the other hand CIM Commercial Trust Corporation (NASDAQ:CMCT) is the least popular one with only 1 bullish hedge fund positions. Trecora Resources (NYSE:TREC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for TREC is 40.9. 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. 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 19.3% in 2021 through June 25th and beat the market by 4.8 percentage points. A small number of hedge funds were also right about betting on TREC, though not to the same extent, as the stock returned 8.2% since the end of Q1 (through June 25th) and outperformed the market.

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