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Were Hedge Funds Right About Souring On TriCo Bancshares (TCBK)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding TriCo Bancshares (NASDAQ:TCBK) and determine whether hedge funds had an edge regarding this stock.

TriCo Bancshares (NASDAQ:TCBK) investors should be aware of a decrease in hedge fund sentiment in recent months. TCBK was in 10 hedge funds’ portfolios at the end of March. There were 11 hedge funds in our database with TCBK holdings at the end of the previous quarter. Our calculations also showed that TCBK isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

AQR CAPITAL MANAGEMENT

Cliff Asness of AQR Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s review the fresh hedge fund action regarding TriCo Bancshares (NASDAQ:TCBK).

Hedge fund activity in TriCo Bancshares (NASDAQ:TCBK)

Heading into the second quarter of 2020, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards TCBK over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is TCBK A Good Stock To Buy?

The largest stake in TriCo Bancshares (NASDAQ:TCBK) was held by Renaissance Technologies, which reported holding $19.5 million worth of stock at the end of September. It was followed by Basswood Capital with a $4.1 million position. Other investors bullish on the company included Millennium Management, AQR Capital Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Zebra Capital Management allocated the biggest weight to TriCo Bancshares (NASDAQ:TCBK), around 0.75% of its 13F portfolio. Basswood Capital is also relatively very bullish on the stock, setting aside 0.48 percent of its 13F equity portfolio to TCBK.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Weld Capital Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified TCBK as a viable investment and initiated a position in the stock.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as TriCo Bancshares (NASDAQ:TCBK) but similarly valued. We will take a look at First Commonwealth Financial (NYSE:FCF), Enviva Partners, LP (NYSE:EVA), TiVo Corporation (NASDAQ:TIVO), and Brookline Bancorp, Inc. (NASDAQ:BRKL). All of these stocks’ market caps resemble TCBK’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FCF 11 22141 -4
EVA 5 86460 0
TIVO 20 72022 -6
BRKL 8 44967 -3
Average 11 56398 -3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $56 million. That figure was $30 million in TCBK’s case. TiVo Corporation (NASDAQ:TIVO) is the most popular stock in this table. On the other hand Enviva Partners, LP (NYSE:EVA) is the least popular one with only 5 bullish hedge fund positions. TriCo Bancshares (NASDAQ:TCBK) 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately TCBK wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); TCBK investors were disappointed as the stock returned 2.9% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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