In this article you are going to find out whether hedge funds think Trecora Resources (NYSE:TREC) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Trecora Resources (NYSE:TREC) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 8 hedge funds' portfolios at the end of March. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as G. Willi-Food International Limited (NASDAQ:WILC), Kaleyra, Inc. (NASDAQ:KLR), and WhiteHorse Finance, Inc. (NASDAQ:WHF) to gather more data points. Our calculations also showed that TREC 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.
Donald Yacktman of Yacktman Asset Management[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. 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. Keeping this in mind we're going to take a look at the fresh hedge fund action regarding Trecora Resources (NYSE:TREC).
How have hedgies been trading Trecora Resources (NYSE:TREC)?
At the end of the first quarter, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. By comparison, 7 hedge funds held shares or bullish call options in TREC a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Is TREC A Good Stock To Buy?
According to Insider Monkey's hedge fund database, Chuck Royce's Royce & Associates has the most valuable position in Trecora Resources (NYSE:TREC), worth close to $7.1 million, accounting for 0.1% of its total 13F portfolio. On Royce & Associates's heels is Peter Schliemann of Rutabaga Capital Management, with a $4.5 million position; the fund has 2.7% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that hold long positions comprise Donald Yacktman's Yacktman Asset Management, Don Morgan's Brigade Capital . In terms of the portfolio weights assigned to each position Rutabaga Capital Management allocated the biggest weight to Trecora Resources (NYSE:TREC), around 2.69% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, earmarking 0.1 percent of its 13F equity portfolio to TREC.
Since Trecora Resources (NYSE:TREC) has faced bearish sentiment from the aggregate hedge fund industry, logic holds that there was a specific group of fund managers who were dropping their positions entirely in the first quarter. Intriguingly, Israel Englander's Millennium Management dumped the largest investment of the "upper crust" of funds tracked by Insider Monkey, valued at an estimated $0.4 million in stock, and Gavin Saitowitz and Cisco J. del Valle's Springbok Capital was right behind this move, as the fund cut about $0 million worth. These transactions 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 similar to Trecora Resources (NYSE:TREC). We will take a look at G. Willi-Food International Limited (NASDAQ:WILC), Kaleyra, Inc. (NASDAQ:KLR), WhiteHorse Finance, Inc. (NASDAQ:WHF), and Metalla Royalty & Streaming Ltd. (NYSE:MTA). This group of stocks' market valuations resemble TREC's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WILC,2,16321,-1 KLR,7,17482,2 WHF,5,3136,-3 MTA,1,518,1 Average,3.75,9364,-0.25 [/table]
As you can see these stocks had an average of 3.75 hedge funds with bullish positions and the average amount invested in these stocks was $9 million. That figure was $15 million in TREC's case. Kaleyra, Inc. (NASDAQ:KLR) is the most popular stock in this table. On the other hand Metalla Royalty & Streaming Ltd. (NYSE:MTA) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Trecora Resources (NYSE:TREC) is more popular among hedge funds. 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 12.2% in 2020 through June 17th and still beat the market by 14.8 percentage points. Unfortunately TREC wasn't nearly as popular as these 10 stocks and hedge funds that were betting on TREC were disappointed as the stock returned -1.5% during the second quarter (through June 17th) 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.
