Underloved Trinity Industries Stock Delivers Big Gains In 2017

Bullish analyst attention and short covering helped Trinity Industries rise on the charts

Jan 9, 2018 at 8:50 AM
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We've been recounting some of our top stock picks of 2017, last week looking back on our winning short position on Chipotle (CMG). On the long side, our traders also nailed a massive move in industrial stock Trinity Industries Inc (NYSE:TRN), which closed the year up nearly 35%. Here's a closer look at why we were bullish on TRN stock in 2017 and how its strong performance unfolded.

What initially drew us to the equity was its strong second-half performance in 2016, which seemingly went unnoticed across Wall Street. We viewed the industrial concern as a potential winner under the Trump administration's focus on infrastructure investment, noting that its price-to-earnings ratio was very attractive compared not just to its sector peers, but the broader equities market.

Based on analysts' ratings, it was clear most Wall Street firms were not expecting much from TRN. At the time of our recommendation, only seven brokerages were tracking the security, and of those just two considered it worth buying. Bullish attention from this group seemed like a strong possibility, and Trinity Industries indeed enjoyed a number of upgrades and price-target hikes throughout the year -- including a big upgrade to "buy" at Stifel in late July that led to a strong breakout from the shares in the subsequent weeks.

We also saw potential for a short-squeeze situation on the equity, since roughly 9% of the float was dedicated to short interest -- equating to almost a week's worth of buying power, going by average daily volumes. Sure enough, short interest had dropped by nearly one-third from Jan. 1 to the start of July.

The unwinding of pessimism surrounding Trinity Industries stock was an ideal scenario for contrarian traders. In fact, the shares closed the year in two-year-high territory and on a five-month win streak, resulting in impressive for our bullish position.

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